The Customer Effect
How digital banks are raising the bar for customer experience
- Online-only banks have amped up customer expectations for authentic experiences
- Building online marketplaces, offering niche products, and involving customers in product development are moves being noticed by incumbents
The Europeans are coming. Challenger bank N26 raised $160 million in Series C funding this week to fuel its expansion to the U.S., and other markets, later this year. Revolut, another U.K. challenger, has been planning a U.S. launch this year too and Monzo is rumored to follow. Digital-only challenger banks have changed customer expectations, including customer service and how customers want to use financial products. Big banks are taking notice, with companies developing sub-brands to hook younger, digital-savvy customers or others -- the most recent of which is rumored to be the Royal Bank of Scotland. "They're showing the art of the possible of what a nimble, more tech-driven bank would do, and the biggest way they've done that is customer experience," said Celent analyst Stephen Greer. "[With big banks] you have legacy technology and culture issues with branches; big banks have cannibalization concerns, and there are a lot of compliance issues." Here are three ways digital-only banks are responding to customer expectations better than banks. Building online marketplaces A marketplace model lets the banks grow their product offerings without having to develop them from scratch, while using a trusted relationship with customers to generate referral fees. Starling Bank, for example, rolled out the first wave of its marketplace in February with connections to third-party insurers, pension providers, investment apps and mortgage brokers, including travel insurer Kasko, robo-adviser Wealthsimple and PensionBee, which lets workers combine their various pension plans from past employers into a single platform. In the same month, Monzo rolled out a marketplace beta. N26, which has a successful marketplace in Europe with partners like Transferwise for peer-to-peer cross-border money transfers, Raisin for savings accounts and vaamo for investment services, plans to replicate the model when it moves into the U.S. market. "We’re pursuing the idea of becoming the central cockpit for all our customers’ finances to facilitate financial education and decision making,” N26 U.S. CEO Nicolas Kopp, recently told Tearsheet. It's a concept that has been missing in banking for a long time: an Amazon-like platform that lets banks, like N26 or Monzo in this case, offer other providers' financial products and services without having to establish individual partnerships or one-off integrations. Cross selling is a time honored business formula for many larger legacy banks, but young financial startups are out to prove they don't need to push more of their own products on customers to retain their loyalty. "It doesn't necessarily have to be a Monzo product," said Valerio Magliulo, product manager for partnerships at Monzo. "We can cross sell any possible product. You access a section in the app which shows several providers' information and [customers] can compare -- they're all presented in an objective and fair way without any stance." Products for travelers and mobile workers: cross-border accounts and travel insurance Revolut offers a multi-currency account that lets customers easily move money between countries for minimal fees -- a task that's traditionally been expensive for major banks. For less than $10, it gives customers access to a range of additional services, including travel insurance, free unlimited foreign exchange transactions, and exclusive promotions. "Differentiation is quite simple because the foreign currency product is unique," said Dan Westgarth, head of Revolut USA, in a recent interview. "Our customers are typically financially savvy, they reside in urban areas and are aware of the financial ecosystem; they're actively looking for a better experience." Making customers part of the product Sometimes, customers and prospects are invited to Monzo offices for in-person beta testing on "Testing Tuesdays," an opportunities to make the customer feel they have a stake in the business. crossed 500,000 current account holders, the absence of physical branches doesn't mean a lack of interaction with customers. Monzo's approach is to release early versions of products to a group of customers and get customer feedback from within the app and through an online forum. It's an approach that gives customers a sense of ownership and excitement about the brand. For Monzo's marketplace beta, it sought out feedback from 3,000 customers. "It's a minimally viable product of what the marketplace will be like in the future -- the customer experience is nowhere near the end goal but we gather feedback and understand use cases of how customers really interact with it," said Magliulo. Other techniques for customer engagement include "product journals," or regular interaction logs customers use to describe their interactions with a product, and ongoing communication with product managers over the bank's online community forum. Monzo responds to every comment. Customers also have opportunities to interact within the developer team's Slack channel. "Internally, we really value frank, constructive feedback, and our community is like an external extension of that," said Richard Cook, Monzo's online community manager. "We want to hear the good, the bad and the ugly from our users. And they always deliver, from helping us decide how to handle ATM fees to giving us our name, our community is with us every step of the way."