Digital Bank Differentiation

#1

How will a digital bank differentiate itself from its competitors in the future?

Right now DBs are coming up with all sorts of new features, but features can be replicated pretty quickly.

What do high street banks do to differentiate themselves from their competitors? Are there lessons to be learnt, methods to be used in the new digital age?

#2

I believe the fees will be the prime differentiator between a digital bank and a traditional bank, for a digital bank is expected to have fewer overheads. In the digital bank, the customer is the prime focus of the business and profits are second, along with more transparency and quick adaptability to market and customer demands.

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#3

I was more getting at how does Monzo, Starling, Atom, Xinja, Volt differentiate themselves given that in time they are likely to offer similar features.

I definitely agree on the overheads side of things when compared to high street banks.

I don’t think the high street branch approach is dead, but their underlying technologies and substandard services while scoring record profits are.

#4

As a rhetorical aside, if you really think deeply about this, is one really that different to the next?

Your question is a good one though.

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#5

I don’t really think they are, but we choose one over the other for some reason.

What is that reason?

I bank with Barclays because my parents setup my account as a child, there’s no other reason.

#6

Great question.

As someone who used to work in product development, and then customer acquisition, within the savings + everyday account area at an Australian “high street bank” I might be able to provide some interesting insights.

The first insight is that it’s exceptionally difficult to get customers to switch their everyday account. Customers simply can’t be bothered with the hassle. Digital banks will struggle to overcome this customer inertia. Lower fees are not enough - otherwise everyone would have already switched to the market leader on fees.

The next insight is that having the “everyday” banking relationship is incredibly important for getting other business (credit cards and loans). Customers tend to keep things simple, with only a few suppliers. Customers almost always go to their current bank first when looking for a new product - that first bite at a new product is a massive opportunity.

Regarding differentiation: It’s possible to differentiate with product features. Designing something that specifically meets the needs of a customer segment the bank wants to target. The key point here is that banks will identify customer segments and will design products and marketing to address the needs of that segment. A segment of customers can be as big (old people) or as small (self funded retirees living in XYZ) as you want, but the product, and marketing, needs to be designed to address the specific needs of that segment.

There are many lessons to be learnt from the big banks. Digital banks will need to be very clear about who they are trying to target, and have a very good understanding of what the customer needs are. I suspect that Digital banks will quickly learn that there is no “one size fits all” product solution.

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#7

Brilliant response, thanks Nerv, that all makes perfect sense.

With that said, then maybe capturing the young and travel tourists is a way to get people in as their first bank account.

#8

this is my first “bank” as a 16 year old.

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#9

Nice, you’re choosing well :wink:

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#10

There are other ways to differentiate in the market too, which may only make sense depending on the customer segments you’re targeting. Things like being a bank with a social conscience - “eg every dollar you save also helps a homeless person”, or only investing ethically. Perhaps it’s that you actually have a huge community like the one you’ve already started here. Lots of possibilities …

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#11

Definitely, I love the idea of the dollars you save being matched or somehow used to assist segments of society. You could even choose your desired charity up front, and change whenever you like. Maybe one month it’s the gorillas, and the next it’s refugees. So many possibilities!

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