Global Business Intelligence

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Banking: Why freedom of choice is needed in the industry

Banks are traditionally known for being slow to innovate, leaving them with slow processes and outdated applications. Even though the European Union’s Second Payment Services Directive (PSD2) requires banks to open up their payments infrastructure and customer data assets to third parties, the traditional view often sticks. Large banks are therefore still viewed as being monopolistic in their behaviour and in what they offer their customers.

W.Up’s whitepaper ‘Beyond Banking: What Traditional Banks And Neobanks Can Learn From Each Other?’ says: “Many traditional players under threat still struggle with making progress in digital transformation and continue to lag behind in online and mobile banking capabilities. Think about this: on average, non-traditional current account providers in the UK offer 42% more features within their mobile apps than incumbents and are nearly twice as fast when it comes to average log-in times.”

The paper also emphasises that the traditional banks have some catching up to do. If they don’t, they may risk losing a significant share of certain market segments. “The biggest digital-only startups are moving from offering pre-paid debit cards to providing a variety of other products, like full current accounts, loans, insurance and more.”

Opening competition

Subsequently, neobanks and challenger banks are spurred on by the directive as it enables third parties to develop new payments and information services, and by the gaps in the market left unfilled by the traditional banks. However, there could be some confusion about the difference between a neobank and a challenger bank.

Chris Skinner, a co-founder of the UK’s Financial Services Club and author of ‘Digital Human’, explains that a neobank “tends to be a spin-off of an old bank with a full banking licence, while a challenger is a new bank with an initial partial licence, offering just a prepaid card like Revolut and Monzo.”

He adds that Dutch start-up “bunq is one of a number of challenger banks shaking the status quo like N26 and Monzo. The key is that their appeal to particularly expats as they make it simple and nearly free to look after your money. For traditional banks that’s hard to compete with, especially in a pan- European digital first model.” Neobanks and challenger banks therefore make the banking market  more competitive. They can also offer freedom of choice, simplicity. transparency and ethical banking.

The Bank of the Free

bunq’s founder Ali Niknam nevertheless agrees that the traditional banks have a long way to catch up. He therefore sees an opportunity to become the ‘Bank of the Free’. To achieve this, it’s important to understand banking customers’ major needs: To be able to quickly set up a bank account with ease– without the hindrance of the slow and outdated processes and apps of the traditional banks in order to offer them a smooth and fast experience, with no hidden fees and more control of their money. Customers are also demanding simplicity as they have no time for drawn-out banking processes.

He says his challenger bank “is founded in a way to allow customer to go about managing their money and their banking in a way that pleases them”, he explains. He believes that some people may therefore argue that some banks have copied some of his bank’s features. However, he argues they haven’t yet copied its essence of its offering, which he claims is tailor-made approach to allow customers to take control of their money.

Ethical investing

That control includes knowing where their money is being invested. “It’s weird, with traditional banks customers don’t even know where their money is invested. When they do find out, they still have no say on the matter”, he reveals. Take investments in palm oil as an example. He says people like himself aren’t happy with banks investing in palm oil and in some other areas of investment – including, perhaps, defence and the arms industry.

“bunq is a service-orientated, user-centric company, and so we felt it important to offer choice because I don’t want to be an accomplice to palm oil”, Niknam says before explaining: “The reason is that large areas of rainforest are being cut down, and so it’s very bad for the environment. There may be also objections to investments in weapons, and so palm oil is but one of the latest shady investments.”

Some people have therefore shared their preferences with him, and he finds that they only want to invest in other people, in mortgages, companies or in state bonds. “You don’t have this tight kind of control with any other banks, and so our essence is that we want to create a service that is so good that customers are willing to pay a couple of pounds or euro per month for it. With traditional banks it boils down to what the core of their product is, and that usually about trying to assimilate as much money as possible against the lowest possible price to loan it out at the high possible price.”

"Bunq is one of a number of challenger banks shaking the status quo like N26 and Monzo. The key is that their appeal to particularly expats as they make it simple and nearly free to look after your money."
Chris Skinner, a co-founder of the UK’s Financial Services Club

Fee transparency

bunq puts its ethics as the heart of what it does. Banking fees are often overly complex for customers to understand – to the point that they often lay hidden in the banks’ terms and conditions, which nobody reads. Moreover, what was once free is now chargeable: bank overdrafts that once charged only interest, now add the cost-burden of an authorised overdraft fee. However, he comments: “If you at look at the Dutch banks, some research a couple of years ago showed that 115% of their income was based on interest – the rest was loss-making”, Niknam explains.

Customers are therefore attracted to banks that offer a greater degree of transparency and simplicity. He therefore clarifies why crystal clear pricing is important: “I think that not many people are not aware of the added costs and hidden fees that legacy banks charge people. Similar to TransferWise, we are calling out for transparency because there are so many hidden charges. If you use your card abroad, banks add a mark-up of up to 3%. So, we are very open and transparent and there are, as the Dutch expression goes, “No snakes under the grass.” This means there is no catch.”

“Once most people dive into bunq, they are often surprised that there are so many hidden charges in legacy banks’ terms and conditions. Nothing is for free, and so there are two ways to go about: by being open and transparent, and the other one is what most legacy banks tend to do is to have it all hidden in different places, so you don’t really know how much you’re being charged. All legacy banks are more of less the same, and that’s what makes bunq different.”

Saving time, every time

bunq boasts that it saves customers’ time, every time. Niknam elaborates on how this is achieved: “We do two things; you can also do what you want from the app, and you don’t need to visit a bank. You can do it all via the app in real-time. When something changes you get a push notification in real-time. With a legacy bank you’d have to call them if you have a problem on holiday, but bunq offers more certainty.”

With simplicity at its core business customers don’t need to jump over the hurdles presented by the traditional banks, the legacy banks if you will. With business customers time is literally money, and so they want the exercise of opening a bank account to be easy and quick. With traditional banks they would often have to make an appointment with a bank, and then fill in a lot of paperwork to open up an account. bunq cuts out this process with a few clicks, making it possible to open up a bank account with a few taps on a mobile device in just 5 minutes.

Niknam discusses how this is done: “One of my other businesses uses Bunq and a traditional bank account. We have a new director, and we wanted him to have access to the bank account and a new card. With Bunq this took 6 taps in the app, while a traditional bank took 6 weeks, and we had to make three appointments where the old and new directors had to be present. Something went wrong, and so the application only succeeded after the third meeting. This happened five months ago, so it was quite recent.” Unlike traditional banks, where you need to wait for a PIN code, bunq can give its customers a new PIN code right away or on the spot, directly from the app.

App simplicity

The simplicity of the app and its how this approach therefore enables senior executives to focus on their own businesses, while having immediate access to banking customer services, invoice-scanning capabilities, the ability to execute mobile SEPA XML payments without the need of a desktop computer, and the ability to synchronise accounts with bookkeeping software, and so on.

Niknam concludes that in the Netherlands people are warming up to the idea of a bank that’s different: “It is lovely to see so many users who love our products. People even send us cakes to our office. It’s just so nice. This is strange but it’s important because people appreciate what we are trying to do here.” In his view his bank is a movement, and he claims that there are a number of people wanting to become part of it, to change a sector that he feels has been stagnant for too long. Freedom of choice is at the core of their campaign, created by “world-class mobile banking” and new partnerships.