What do people think about when switching to an app-bank?
Inertia. It is a mighty barrier standing between the gaggle of promising UK app-banks and mainstream adoption.
Despite all the obvious benefits of these app-banks, despite the clunky, pushy, dated nature of their incumbent rivals, and despite the painlessness of the Current Account Switch Service, the sheer fear of switching bank accounts can be paralysing.
I experienced this first-hand over the weekend. That’s right: I am currently awaiting the completion of a full-scale switch from an incumbent bank to a digital alternative.
The first thing to say is that the Current Account Switch Service, launched in 2013 by the not-for-profit organisation Bacs, is a wonderful thing. I cannot even imagine how little people must have been inclined to switch banks without it. Combined with genuine alternatives in banking (which certainly weren’t as prevalent in 2013), the Switch service could become a real thorn in the side of old-school banks.
According to figures released by Bacs last week, 5 million switches have been made using the service since its launch, with switching up 6 per cent in the past 12 months. But the spoils have not necessarily gone the way one might expect.
Halifax has taken the lion’s share of those jumping ships lately, gaining a net 33,942 new accounts during the first three months of 2018, according to Forbes. Starling Bank, by contrast, nabbed just 1,153 new accounts.
I expect the growth of this scheme to continue. Without it, the great wall of inertia would not only be higher, it would be covered in grease.
The switching scheme ensures that all the core elements of the bank account move between providers: balance, standing orders and direct debits. The service can transfer over either the full account or certain sliced-and-diced parts of it. In the former scenario, it can also close the newly-redundant account on behalf of the switcher.
But upon the brink of such a high-stakes moment, all sorts of worries pop into the mind. What if I receive a one-off payment to my old account, from a person unaware of my tectonic switch? Fear not! The switching service captures these errant payments and ensures they find their way into your shiny new account. This feature in particular gave me the confidence that Bacs had thought of everything, and I was ready to press ahead.
However, technical issues relating to the transition were just one small part of my perturbance. Far more troubling, on the brink of the switch, was the nature of the bank being switched to.
An app-bank. A bank without branches. A company no more than a few years old. A firm without the grey-haired armies of its incumbent rivals, without the scars of a rising and falling economy, without the familiarly stale but safe brand that so many banks have hammered into us at airports and on busses and televisions since we were born.
Look, I know a decent amount about digital banks. I write about them several times a week. Yet still I was tempted to behave in a way that was, in my clinical opinion, irrational: I was tempted to cancel the switch.
I’m not going to waste time reeling through the benefits of digital banks. They should be obvious. But I will spend time laying out the mental checklist I ran through to get me over that dreadful towering hump of inertia.
The app-bank I’m switching to has a banking licence. I don’t think I would have gone through with it otherwise. The assurance that up to £85k of my money will be backed up by a state guarantee even if the bank itself collapses is an invaluable confidence boost. I understand the argument that ring-fencing via e-money is every bit (if not more) secure, but it’s just less familiar, less straight-forward. And as you’ll have gathered, people on the brink of switches such as these become irrational: they’re not ready to deeply consider the appropriateness of client money segregation via an e-money licence.
My experiences dealing with the app-bank-in-question’s customer service team also turned out to be vital. I hadn’t been able to open my account with my chosen app-bank especially quickly, owing to a proof-of-address quirk. That meant that I had to ring up the bank several times, and each time it was both useful and painless. I requested call-backs within seconds, they came within minutes. The problems I had experienced were easy to identify and to resolve. Knowing that capable help is just minutes away, should problems arise, goes a long way.
And the final, somewhat surprising factor I found myself considering was brand. As mentioned, the benefits of app-banks are fairly obvious – and most of the app-banks themselves offer a fairly similar set of features and tools. It’s only very slight points of difference that separate them. On the brink of switching, I found myself considering the brand of my chosen app-bank at great length.
Was it only growing quickly, or was it perhaps growing too quickly? Had it shown evidence of acting in the interests’ of its customers in ways that would not directly benefit it as a business (see, for example, gambling blocks, data breaches, and so on). What kind of reputation was it building through its social interactions (events, blogs, social media, etc.)? That of a pugnacious, utopian big-bank killer? That of a pragmatic but superior tech operator? That of a relentlessly customer-centric obsessive? Was I aware of evidence of this particular bank tweaking even miniscule aspects of its offering in a constant effort to fine-tune its customer experience?
I’ve always been a little sardonic in my coverage of app-banks’ latest design features. A steel card, vertically-aligned, harking back to the era-shifting monoliths in 2001: A Space Odyssey. A desert sand coloured card, drawing inspiration from the blah blah blah.
But actually, it does matter. It’s all part of the broader picture – of the impression the bank gives off. And that impression, that brand, is of vital import when standing on the brink of diving head-first into the world of app-banking and leaving behind the incumbent bank that has in all likelihood held you captive since your early teens.
Unfortunately, I get the sense I was only able to go through this checklist, and to take the plunge, because it's part of my job to know these things. The great challenge for app-banks is to impress their brand on the wider public to the point that they too feel secure enough to switch.
My guess is most people wouldn’t regret switching, but in the short-term at least, I fear we’ll never know…
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.