Like Versus Trust
Why challenger banks may never succeed
Over the last decade, I’ve lost count of the number of surveys, reports and comment pieces that report on a public lack of trust in banks. And pretty much every single one of them is wrong.
Of course people trust banks. They put their earnings into them and assume they will be protected and managed on their behalf. They borrow vast sums of money from them, and give them the power to remove them from their homes should there be defaults on the repayment. They choose to have faith that mere pieces of paper or plastic cards are transactable against their daily needs, backed up by an infrastructure that they neither see nor understand. They rely on banks as fundamental to their lives. And, for the most part, once they have chosen a bank they stick with it, rarely switching to another — even when there appears to be sound rational arguments for doing so. None of these are the characteristics of mistrust.
No, the problem many people have with banks is not that they don’t trust them, it’s that they don’t like them. A lack of likeability is a very different thing in terms of how it influences choice and behaviour.
In many situations a lack of ‘like’ creates no disadvantage. Do you need to like the pilot that flies your aircraft? Of course not. Many historical leaders, in government or business, have not been well-liked for their inter-personal skills but were nevertheless lauded for their strategy, judgement and decision-making skills (a few present-day incumbents have some way to go before they fit this bill). In some circumstances a lack of like may even be advantageous. I was once advised to choose a surgeon I did not like on the basis that their lack of emotional connection to me allowed for more rationality in the operating theatre — clinical, in all respects. One might argue that the more people are obliged by their own ignorance or inability to cede control of a function to some other entity, the less it matters whether that entity is liked. And, so it may be for banks.
“Yet this can’t help but feel like a disappointing state of affairs. Since the financial crisis of 2008, a sense of dissatisfaction with the banking sector has persisted like the constant hum of traffic by a busy road. The need to like our banks may well be distinct from the need to trust them but it seems important nonetheless. And in this age of innovation it is reasonable to expect.”
There are, of course, a healthy crop of challenger banks that have emerged with intent to disrupt the established consumer banks and fix this. Across Europe and the US, the list is long: Monzo, Revolut, N26, Starling, Moven, Simple, Varo, Chime, to name but some. These are all brave and noble efforts to create more likeable banks. Thoughtful apps and UI/UX, cool-looking cards, funky advertising, even dog-friendly physical spaces are among the user-friendly tactics these challengers have deployed. If you measure success in terms of media attention, signed-up consumers, and the ability to secure funding, they have worked. However, if your criteria for judging a good business is its profitability or balance sheet, then all of them remain unproven. More fundamental still, the reality is that while these challengers have brought a new dynamic to the market, they can’t be said to have disrupted the market to a fundamental degree. Specifically, they have failed to displace the legacy banks from their established position; they have become an optional extra not an alternative and I don’t see that as a sustainable position — certainly not for as many as exist today.
The biggest problem for the challengers is that it doesn’t take long for legacy banks to catch up with the innovations in product, service and technology. In fact, we should be celebrating the established banks as brilliant case studies in playing the long game in the face of sector disruption. They have watched, waited and responded to the things that work. They have built their own money-management apps, redesigned their credit cards, upped their branding ante, and improved the end-to-end customer experience. If you really needed a bowl of water for your dog, I’m sure they would give you that too. They have been agile when they need to be, yet stayed calmly confident too. Importantly, they have managed their brand architectures skilfully, at times introducing innovation through new brands then managing their transition to the core at exactly the right time. And all the time, knowing that the fundamental determinant of consumer decision-making is based on a deep-rooted sense of trust that trendy challengers just can’t match.
For many of the challenger banks, perhaps being a catalyst for change in the sector is enough of an achievement, even if their own brands do not survive. (Although, there’s surely some irony in the notion that the founders of new banks looking to disrupt a traditional system widely perceived to be unfair, may end up making personal fortunes from businesses that continually operate at a loss).But for those with aspirations to become the sustainably dominant brands of the future, is there really much hope?
Well, perhaps. But to do so is going to require a broader view of innovation than any I see today. They will have to go beyond the largely cosmetic confines of likeability and build new and broader utility than conventional banks offer (or can easily copy). They need to raise their ambitions: Amazon started out with the intention of disrupting bookstores, but quickly realised that a transformation of the entire consumer retail experience was up for grabs. Most importantly, they need to acknowledge that the data they look at that says people don’t trust banks is wrong and that, for that most fundamentally human of reasons, they cannot win against their long-established, scaled, secure rivals on personality alone.
Challengers are doing an outstanding job to make our banks more likeable but it’s the established banks that I expect to stay firmly ahead.
Originally published in Forbes.