Travelex Currency White Paper.pdfTravelex Currency Solutions | 6 Thinking about the bank where you hold your main current account, do you use this bank for the following services?

Travelex Currency Solutions | 1

Travelex Currency SolutionsThe Race to Re-bundle the Bank


Banks have been under pressure for some time. This pressure has come from regulators, from customers and from new competition and there is no one front on which banks can focus to combat this. Regulations are becoming more stringent, new entrants, both challenger banks and the threat from the likes of Google, Amazon, Apple and Facebook, are forcing a rethink of what banking is, and customers, now mobile-first, are accelerating this evolution and banks have struggled to keep up. Regulations apply equally to all, so the real threat comes from changing customer demands and new competition.

These two forces are threatening to unbundle banks. In other words, new entrants are taking individual services provided by banks and giving them to consumers in ways that fulfil their needs. Services such as international money transfer, credit cards, current accounts and savings accounts have all been targeted by providers aiming to take a slice of that market away from the banks. The net result of this will be that banks have fewer customers using these value-added services, instead acting simply as a repository for salaries which are then distributed to various other accounts outside the bank’s purview.

For all this talk of a new world order, Travelex wanted to understand what the market looked like in practice. Were these new forces actually encroaching on banks’ market share? Had banks been pushed aside in favour of new ways of managing finances? Or was it wishful thinking and marketing, with banks remaining at the heart of consumers’ financial lives?

Opinium research was commissioned to conduct a survey of 1000 UK consumers to understand how their financial lives had changed and what kind of relationships they had with their providers. The results paint a picture of a banking system that, contrary to the popular narrative, is not in the throes of transformation.

They show an industry that has already been transformed. Banks have been unbundled. Consumers no longer see them as the centre of their financial lives and they are arguably just another service provider.

However, the new landscape presents opportunities for banks. With choice comes confusion and frustration, and this frustration is apparent in the current dynamic. The trust banks have built up over decades can now enable them to give their customers visibility and control over their financial lives again. Something that new entrants are not able to replicate.

Introduction

““ Banks have been unbundled. Consumers no longer see them as the centre of their financial lives and they are arguably just another service provider.”


Unbundling has happened already. We are now in a post-challenger, post-FinTech world where historic banking models do not work. This much is clear from the fact that growth in the number of accounts held at alternative financial institutions far outstrips the growth rate of those held at traditional banks. The types of services used also continues to diversify signaling a fundamental erosion of the loyalty that many consumers have felt for their bank.

This loyalty is not simply being broken. In younger consumers, it’s not being formed in the first place. Instead, this unbundled world is forming, and is in turn being formed by, consumer behavior. Consumers are free to choose whichever service they want to from any provider. They are no longer tied to their bank, or subject to lengthy application processes involving branch visits and intrusive questions. They choose their bank account in the same way they choose insurance or broadband provider.

This choice and diversity has led to a confusing landscape of services, with seemingly little to separate them. Factors such as user experience, brand affinity and convenience now play a part in service selection as well as the more usual factors - price, functionality and simplicity. Managing these services also seems to be proving a headache for many, understandable given that each service will require a different set of user credentials to access. The frustration is such that a sizable proportion of consumers have thought about closing accounts.

It’s this confusion and frustration that points to an opportunity for banks to regain some of the ground lost. As the number of accounts held increases, consumers are demanding a simpler way to manage and understand their ever-more complex finances. The majority of respondents want a single, integrated dashboard to manage all their financial relationships and it’s banks they trust to deliver that. The larger opportunity lies not just with providing the dashboard but creating a marketplace for consumers to access the services which the dashboard manages. Banks can continue to offer international money transfer, credit cards, personal financial management and investment services, but they don’t need to build these services themselves.

By partnering with those companies who originally sought to disintermediate them, banks could begin to re-establish the dominance in the market they once had. They could rebundle themselves.

• The average number of accounts has increased 28% over the last 10 years.

• e-wallets (80%) and international money transfer accounts (29%), have shown the biggest gains, with credit cards and current accounts increasing by around 15%

• 46% of under 36s have more than one traditional bank account, 39% have more than one online alternative account and 43% have more than one high street alternative account

• 47% use a provider other than their main bank for online or mobile payments

• Over a third use an alternative provider for credit cards or savings accounts

• Around a third use these providers because they’re faster or they have a better rate

• One-in-five use alternative providers because they prefer either the user experience, the new service’s brand or because they wanted to try something different

• 44% of under 36s would be more likely to use improved account opening and mobile payments services under PSD2

• 59% of customers would be more likely to use other providers if they could manage them from a single interface

• 42% of people are frustrated with managing their accounts from multiple interfaces, 55% of those have considered closing accounts because of it

• 59% want a single-dashboard service to be provided by their bank, only 18% want a tech company to provide this portal

Exec summary & Key findings

Photo credit: Shutterstock


The average number of financial services accounts held by an individual has increased markedly over the last 10 years, with a pronounced uptick three years ago due perhaps to the account switching guarantee of 2013. The number of providers has also increased, pointing to the fact that loyalty to one’s bank is a thing of the past. In fact, traditional banks’ market share is being eaten by non-traditional providers. The traditional services provided by traditional banks are also suffering at the hands of new, digital technology.

• The average number of accounts has increased 28% over the last 10 years.

• e-wallets (80%) and international money transfer accounts (29%), have shown the biggest gains, with credit cards and current accounts increasing by around 15%

• The number of online providers used has increased by over 50%, compared to traditional banks increasing only 12%

Banks have been unbundled

Pre-Paid cards

Alternative high street provider

10 years

10 years

5 years

5 years

3 years

3 years

Current

Current

1.39

0.82

1.06

1.76

0.83

1.22

1.8

0.91

1.31

1.9

0.94

1.6

2

0.98

0.61

0.33

0.36

0.34 0.34

0.39 0.41

0.8 0.9

0.97 1.02

1.431.45

1.61

1.13

1.1

0.49

0.38

Money transfer accounts

Alternative online provider

E-wallets

Traditional banks

Credit card Bank Account (Current/savings

How many different accounts for the following do you have, 10, 5 and 3 years ago?

How many of each of the following financial providers do you use for these products?


The data clearly shows a public migrating to digital services that disintermediate banks, and that uses an increasingly large number of accounts to manage discrete financial needs. Effectively, unbundling in action.

The new rules of attraction

This begs the question, what’s driving this increase in the number of financial services providers used by an individual? The answer is slightly more complicated than many would assume. It’s not as simple as “cheaper, better, faster” although this does come into play. Nearly a fifth of people say that they have gone to other service providers to help them either budget, create a dedicated bill-payment account or for a joint account.

There is evidence that speed of service, price and user experience come into play when choosing a provider but the decision to go to another provider is clearly based on financial need. Brand loyalty seems not to come into play when making that decision, although brand perception (of the new provider) and curiosity do.

• 47% use a provider other than their main bank for online or mobile payments

• Over a third use an alternative provider for credit cards or savings accounts

• Around a quarter use one for rewards/incentives or money transfer and FX

• Around a third use these providers because they’re faster or they have a better rate

• One-in-five because they prefer either the user experience, the new service’s brand or because they wanted to try something different.

One account is dedicated to bills

The extra account helps me budget

One account is a joint account

Opened a new account and didn’t close the old account

I opened a second account for a better user experience (e.g. fingerprint or facial recognition log-in, real-time notifications on my phone

showing spending, etc.)

I opened a second account to access additional services (e.g. international currency transfer, personal finance management, etc.)

Other

I don’t have more than one account

23%

22%

20%

16%

16%

11%

3%

32%

If you hold accounts with more than one provider, why have you gone to a different provider?


Thinking about the bank where you hold your main current account, do you use this bank for the following services?

Online payments

Instant access savings

Credit cards

Loyalty rewards and incentives

International Money Transfer

Foreign Currency

Yes No Not applicable

75%

58%

43%

36%

22%

20%

20%

36%

49%

54%

64%

67%

5%

7%

9%

10%

14%

12%

This points to a double-edged trend for financial service providers. Firstly, your customers aren’t loyal to you, meaning upsell and cross-sell opportunities may be harder to uncover. Secondly, new customers are attracted to a range of new products by a range of factors. While “cheaper, better, faster” plays a part in making a final decision, the reasons for beginning the search for new products are rather more diverse.

At the point of making a decision, the differences between products are incremental and sometimes factors outside the control of the providers prove to be key. Rather than trying to convince customers to have one financial relationship citing convenience, perhaps better to help them manage the multiple relationships they have selected themselves, supplementing key services with access to selected third party offerings.


These trends are more pronounced among age groups, with older respondents tending to gravitate towards the traditional models of banking. 51% of those between 18 and 25 do not have a credit card, while only 27% of those over 56 do not. Conversely, 20% of 18-25 year olds do not have an e-wallet, while 47% of those over 56 do not. This mindset feeds into the reasons each age group cites for selecting other providers for specific services. Those 36 and older cite getting a better rate as the driving factor, whereas those under 36 value user experience.

The diversity of peoples’ financial lives also increases amongst the younger cohort. 46% of under 36s have more than one traditional bank account, 39% have more than one online alternative account and 43% have more than one high street alternative account. This is in direct contrast to those over 36. Although 41% of 36+ year olds have more than one account with traditional providers, it seems they have been slow to embrace their competitors. Only 11% and 15% have more than one account with alternative high street and alternative online banks respectively. Tellingly, those under 36 are more likely to use improved account opening and mobile payments under PSD2 than their older peers.

• 51% of 18-25 year olds do not have a credit card

• 80% of 18-25 year olds have at least one e-wallet

• 28% of those under 36 choose a service for the user experience

• 36% of over 36 year olds choose a service because of rates

• 46% of under 36s have more than one traditional bank account, 39% have more than one online alternative account and 43% have more than one high street alternative account

• 41% of over 36s have more than one account with traditional providers, only 11% and 15% have more than one account with alternative high street and alternative online banks respectively.

• 44% of under 36s would be more likely to use improved account opening and mobile payments services under PSD2

• 72% of those over 36 would be less or equally likely to use those services.

Do you have a credit card?

80%

70%

60%

50%

40%

30%

20%

10%18-25 26-35 46-5536-45 56+

No Yes

The changing demands of the younger customer


Why did you choose the alternative provider?

How many of the following types of accounts do you hold?

80%

70%

60%

50%

40%

30%

20%

10%

I get a better rate

It’s faster

I prefer the user experience online/mobile

I save on fees

I like the brand

It offers more functions and capabilities

I was curious to try out a new service

I don’t trust that my bank would give me the best service

Other

under 36 under 36 under 36over 36 over 36 over 36Traditional Alt High St Alt Online

0 1 more than 1

0% 15% 30%5% 20% 35%10% 25% 40%

under 36 over 36


As younger people move into financial services, banks need to change to reflect their demands. It’s no longer just about credit and good rates, it’s about access to multiple services quickly and with a great user experience. PSD2 looks set fuel this trend the added functionality that open APIs will bring may well provide an additional catalyst that accelerates the account diversification process.

60%

50%

40%

30%

20%

10%

More likely Less likely No difference

under 36 over 36

New regulation will give you the option of allowing third parties that you trust to access your bank account to make opening accounts and mobile payments easier. Would this make you more likely to use services

from other providers?

““ It’s no longer just about credit and good rates, it’s about access to multiple services quickly and with a great user experience.”


This shift in perceptions is highlighted by the frustrations customers feel about their current landscape of providers. With the hunt for the best solution for a particular need comes the necessity to manage that service and make sense of how it fits into a wider financial life. The majority of customers (59%) would be more likely to use other providers if they could manage them from a single interface. This increases significantly when looking at millennials (69%).

It’s clear from the survey that consumers are frustrated with the lack of ability to manage their financial lives from a single place. 42% of respondents expressed frustration and of those, 55% said they had considered closing accounts because of it. When asked who they wanted to provide such a service, almost 60% said their bank.

• 59% of customers would be more likely to use other providers if they could manage them from a single interface

• 69% of 26-36 year olds would be more likely to use other providers if they could manage them from a single interface

• 42% of people are frustrated with managing their accounts from multiple interfaces, 55% of those have considered closing accounts because of it

• 59% want a single-dashboard service to be provided by their bank, only 18% want a tech company to provide this portal

If yes, has this frustration ever made you consider closing any

of your accounts?

Making sense of the new reality

Are you ever frustrated that your financial accounts/

products are located with a number of different providers,

with different passwords, account details etc.?

Would it make you more likely to use services from other

providers if you could see the details of all your accounts through a single portal or

dashboard?

59%55%59%

41%45%41%

Yes No Yes No Yes No


Who would you want to provide this portal?

Traditional financial services companies have an opportunity. Unbundling of services has happened and consumers now want to choose who they receive financial services from. It’s too late to bring them back to the old way of a single provider for all needs. Instead banks must build on the trust their customers have in them and help them make sense of this new financial landscape. Banks must make efforts to rebundle services, and not necessarily their own.

My bank

A technology company e.g. Apple, Google

Alternative financial provider e.g. Monzo, Revolut

Another bank

Other

It doesn’t matter to me

59%

18%

7%

5%

0%

12%

““ Traditional financial services companies have an opportunity.”


The financial services landscape has changed. The future predicted by many, one where banks no longer have the dominant market position, is no longer the future. This, however, isn’t the end of the road for banks. They have the opportunity to regain this dominance by helping their customers make sense of an increasingly complicated marketplace.

The myriad new service providers available to today’s consumer provide choice but they also create confusion and frustration, making the result of the banking revolution anything but simple. Many consumers struggle to manage their multiple accounts, and a sizeable percentage are ready to close accounts due to this. They have expressed a need to manage these services from a central dashboard and trust their banks - beyond anyone else - to run this dashboard.

This would enable banks to do what they have long being trying to: to have complete visibility of each customer’s financial relationships and see how they are interconnected. In creating this dashboard, banks will be able to develop a far greater understanding of their customer base and be in a better position to help them. Not only this, but banks can go one step further and create a marketplace for carefully chosen financial services from third party providers and effectively rebundle themselves.

Services such as international money transfer, mobile payment, personal financial management tools, and credit cards are ones that are arguably done better by FinTechs and others. Rather than continuing to build services, often not as good, the marketplace approach allows banks to reap the benefits of offering such a service without the headache of actually developing and managing it.

With PSD2 around the corner, integrating these services with current accounts should prove relatively simple. Indeed, these services will be integrated, like it or not, thanks to the open API initiative. For all the talk of disintermediation, unbundling and a new dawn for banking, the mechanism that was to bring this about may well have provided a means for banks to reestablish their position at the heart of consumers’ financial lives.

Methodology

The survey was conducted in November 2017 by Opinium Research on behalf of Travelex. 1000 consumers over the age of 18 with UK banking relationships were surveyed online.

To discuss the findings in greater detail, please contact Colin Swain: [email protected]

For media inquiries please contact Adam Miller and Elvina Soogun: [email protected]

Conclusion

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