An Open Letter to the Challenger Bank

Open Letter

Preface: Several tens of Challenger Banks are coming to change the Financial Services landscape in the UK.

If you’re a banking consumer that is not in our oh-so-controversial Financial Services industry but are counting the days till all these new Challenger banks in the UK hit the market so you can finally have the experience you deserve when you handle your money, you’re right to be excited, they will deliver much needed awesomeness by comparison to what you have today. Please avert your eyes, we have some boring FinTech-y things to discuss and they may give you anxiety. Don’t worry, everything will be fine by the time it hits your mobile screen.

If you are a UK incumbent also avert your eyes, this is not written so it makes you feel less inadequate just because some of these issues are clear to you. You’re every bit as behind on your to-do list as you were when they came in the market, you’re exponentially less potent in achieving any meaningful understanding of the consumer and acting on it and the fact that the first wave may get some things wrong ,does not buy you that  much time, even if they all vanish by 2016 PSD 2 is still upon us and anyone can still get a banking license. Hurry up and wake up. 

***Warning – Major Spoilers Ahead!*** 

Dear Challenger,

Pull up a chair and let me get you a cuppa, this could take a while.

Let me start by saying I’m here to kill some of your dreams. I’d apologise in advance but it’s necessary cruelty, you can hate me all you like but we both know this is not about me and not about you but your consumer.

I buy it that you love your consumer already, Challenger. I really do! I think you’re honest in your pursuit of a better way for them, I know you’re right to be indignant in your assessment of all thebanks you’re challenging on their behalf, I believe that you’re feeling less like a new business owner and more like a newly minted social worker, I am not doubting any of that enthusiasm. Go dreamers, heaven knows the consumer needs all the help they can get.

But they won’t get it unless we clarify some terms. You don’t need a pen, you can take notes on that iPad.  The terms we’re here to discuss are almost the opposite of my usual easy-to-mistake-for-fluffy “let’s think of people’s feelings” stance and that’s because you, my dear Challenger, have nearly got that right. You get what Millennials want, what busy professionals are frustrated with, how to make cool experiences that delight and you use fancy and oh so delicious terms like “Invisible Banking” so I’m proud and hopeful.

We’re here to talk about four things without which you can forget it – pack your bags and go back to the incumbent you want to escape. Those four are: core technologyproduct  and two key business terms – adoption and retention.


When I say “technology” I need you to tell me what you bought to make this happen. Or built. No matter. Open that box, what does it have in it? A core banking system you say? Great. You’re anxious because you bought what you used to think you hated in your other job and you’re not sure it will hold up to scrutiny? Don’t be, they’ll get smarter with you, pull them along. You’re worried because you’re not positive the mainstream tech you’ve pulled together in your own makeshift box may make it disintegrate? That’s possible but you’ll deal with it. Either hating your backend provider or wondering if your hacks will hold is part and parcel. Welcome to being a banker. I’m here to ask you to look for two things in that box. Get your arm in and tell me if you feel anything shaped like a sturdy transactional categorisation engine and something that feels like an automatic aggregation framework. Found them? Marvelous, we only need to worry about some of the other things now. You can skip straight over product even, those two will keep consumers in love even if you have none.

Wait what? You only found one or worse still, neither? Uh oh, Huston we have a problem. We don’t have a minor, easy to fix in time problem, we have a major one that will not let us get those two magical things called Adoption and Retention because you know what? You won’t be able to show the consumers what they did with their money and what they did in the places they spent it in, because you do know in your heart of hearts that no matter how many new features you think of, and how amazing your APR proposition is, you won’t be anyone’s primary bank, right? At least not to start with. Not for a long while and they need to kinda look at the entire picture of their finances or they won’t come by… You need categorisation to show them WHAT and you need aggregation because the WHERE happens in several places and primarily elsewhere.

Yes, yes, finding (and affording) those bits of technology is nearly impossible and your provider had no such thing and utterly impossible to built so your team and your other technology providers said you’d be fine without them, that you can wait for the change in legislation to add it easily later on once all the APIs land in your lap, or better yet wait, did they promise you that your sheer awesomeness will make you the primary bank of choice to your consumers immediately and even more, that if you gave them aggregation you wouldn’t force them to make a choice. You’d be the spouse ready to accept an open marriage rather than threaten to take its awesomeness out of the equation if full exclusivity and eternal fidelity is not restored. They will have to recognise your value and promptly close their HSBC Premier account or just never get that doggy bone in a Metro for crying out loud!


Please settle down, I can see it, you’ll be their everything, got it. Which brings me to Product. What are we giving them? Beautiful funky cards. Mustn’t forget those. Savings of course. That’s easy and that’s where all the money’s made. Loans as you’ll maybe partner with some Alternative Lending FinTech unicorn. P2P payments with a twist as they all need to split bills and the UK has no Venmo. And of course Current Accounts where they will see all this and sort what they are really left with, pay bills and get their salary in. You can wait with mortgages or investment or even SME awesomeness if your target is the main street consumer. Wait what? No payments? It’s ok, we can integrate the Apple and Samsung later, maybe you’re right. No lending as it’s too much hassle for now? O..k… I’ll stop you right there because if what you are about to say next is no Current Accounts either then Houston we have an even bigger problem and not a fixable one.

*Sigh* Didn’t we just agree you want to be their primary everything day one and that’s why you’re not getting aggregation? Well what do we do now because if you don’t give them a way to get paid and pay they’ll have to get it elsewhere, surely you understand that? Dear oh dear… let’s see what we can still do to save this.

Adoption and Retention

Adoption first – look into the coffers, please. Don’t tell me what you see, this is an utterly rhetorical question. Deep? Loads of pounds left after buying that back-end, hiring those ex-bankers and paying for that license? Enough for the reported, disputed and dreaded cost of acquisition? What did you budget for it? 50£? 100£? 500£? How many people need to move to your new bank to make this work? How many of the other 26 new banking propositions will you have to wait out? Would getting as many customers as the only other challenger be enough? I’m referring to Santander, dispute it all you like, but they kinda do that now in the UK. Of course you also have to wonder – would their business model work in isolation with only 2M consumers or is it just because they own the rest of the banking universe elsewhere that they do well? Ok maybe not 2M but surely you must be shooting for 1 Million consumers in 3 years? No? 500k? Ok 500k – let’s see what that is for a conservative 50 quid a pop. Wow that’s still a lot of dough. Are we good? Great, now all we need to worry about is how to keep them once we get them – retention. A few million short? I’m afraid we’re hitting a dead end.

See this is the deal – it’s a simple equation – if you give them the needed technology and a full stack of product, then you don’t need to buy them, you’ve brought them so much value word will eventually spread and you’ll quickly grow organically when the entire customer base finds out how you are the Holy Grail of banking but that’s not your plan is it, so you need to afford acquiring these customers to get any adoption to your semi-valuable-but-shiny-features.

Ok, let’s imagine you’ll go out and get a few more tens of millions to either buy more tech or pump up your product offering before you go live or pour it into aggressive TV campaigns and get some people to try you after we did. Now all you need to worry about is Retention. That they stay. That you build that mythical trust. That you keep them delighted. Except you don’t because this part you have right, this is the quality of the Experience and that’s going to be there. If you sorted the Tech or the Product and you managed to get Adoption, you’ll get your Retention, you’ll be awesome and make them fall in love and want to stick around, that will be easy and magical.

It’s only here that you can count on the Social fun, the Gamification, the Telepathic Authentification, the new Free-2-Spends, the Causes, the Offers, the Notifications, the Trading Simulations, the Savings Ladderboards and all the other exciting, hopefully addictive features you dreamt that will grab them by the heart. But to get here you need to have sorted the steps above.

So dear Challenger, to survive you can miss one of these three but not all three irrespective how much awesomeness you packed in the Experience. Either strong tech (categorisation and automatic account aggregation) or compelling full product stack (current accounts being a sine qua non condition to engagement) or money for adoption (loads and loads of it so you buy these people and then pray to the Gods of banking they stay till you fix the other two). Pick your poison.

That’s to survive. To thrive and succeed you need it all. Tech, Product, Adoption and Retention aside from your undoubtedly beguiling Experience.

I’m sorry this was upsetting and please don’t think it is too late, you can still change course and get yourself in shape, of course you can, you’re not one of them old, stuck mammoth banks and we all need you to succeed, we really are rooting for you and would like you to see you do well for all our sakes.


A Hopeful Future Customer

The FinTech Gold Rush and ABE

If we take a step back and look at what has been happening over the past 2-3 years we have reasons to rejoice. We were but claiming -if vehemently- that banking as we know it will vanish like the records industry at Bar Camp Banks organised by the Dave Birchs of the world and visited by the Chris Skinners and Brett Kings on their way to real meetings with real banks where they must have tried to sweeten the pill but warn of the same thing. We looked tin foiled and in need of medication to claim that, at a time when the only lipsticks being bought were a pale shade of pink and allowed customers of a bank the luxury of a (grossly estimated) expenses pie-chart at most. Look at us now with our fancy game changing Alternative Lending, Alternative Payments and Transfers and Alternative Currencies and yes, Alternative Banking Experiences.

To me ABE (we’ll never look anything like serious bankers and expensive consultants if we don’t acronym wherever possible) includes everything that was not a bank 10 years ago and yet reaches consumers. The awesome but few and far between Real Banks that Could (TM) such as mBank; the Neobanks such as Simple and Moven, the NearBanks such as the insurers and comparison sites entering the “will show you where your money is and help you move it with so much more ease you’ll think I am a bank” game and the Challenger Banks such as the 20-something about the hit the UK with a storm of mind-blowing, life altering new banking experiences.

In the past year we’ve talked about nothing but the FinTech gold rush. How much was spent, how much more there is laying around in itchy pockets, how many Incubators can we build to hatch the next best thing and so on. We all instinctively feel it is a bubble but not a classical one, one of distributed eggs in far too many uncommitted baskets. No one believes in anything with all their might and that’s clear in the numbers. While ABE-ers would be expected to score small like this heralded European Challenger – Monese, (with a record breaking score in this category being that of the Simple cash-out at 117M $) even some of the rails gather petty pennies with the new-kid-on-the-block Ripple bringing home a meager 28 M $ on the last round. Of course the counter examples are the famous (if disputable in sustainability) Lending Club and Square successes and the recent two 1-BN-ers TransferWise and Funding Circle but even their success is minimal when put in perspective.

I certainly don’t proclaim to understand investment cycles, valuation games or the markets but common sense and basic Maths make the contrast between these scores (and others I’ve left out as they are embarrassing to us all) in our industry and those of Whatsapps, and Slacks elsewhere in digital technology (I’m not even going to refer to the real disruptors’ scores such as Uber or AirBnB).


There’s a phrase in this article about the darling of the Tech world -Slack- that’s actually hopeful to banks but also explains the disparity: “Over the past couple months, their competitors have caught on. They’ve all started using casual copy and trying to bone up on design, but it’s a little like your uncle trying to do the macarena. It’s too little too late. Everyone has picked their robot sidekick. Slack has stolen the show.”

This is evidently not about banking but collaboration but if it had been it would be both hopeful and telling. If you replace “robot side kick” with “hip and trendy bank or neobank” and “Slack” with “mBank” or “Moven” it doesn’t hold true because extraordinary as they may be they are far from ubiquitous. Every bank has an opportunity to at the very least write better copy and do better on design -while waiting to wake up to new contextual business models- as we’re all more-or-less prisoners of our respective local banking relationships.

Communication, collaboration and many other aspects of our digital lives have a far more borderless, deeply human aspect than we can hope our relationship with money and banking to exhibit during our lifetime (at this rate).

Not even the most daring of ABE-ers ever claimed they can become the bank of choice for anyone in any economy in any corner of the world. This would be bizarre to anyone outside our industry (can you imagine Dropbox or Snapchat saying they only want to inflict their digital magic on Americans?) – if the relationship these Alternative Banking Experience providers are building is strictly digital why is it that they think in terms of geography? The answer to us in the industry, is local regulation or at least, the perceived hurdles of it. If banking is hurting indeed and these new propositions are the agreed universal answer, why is it that no big wig investor (since there are 4x more of them than there were a few years ago) sat enough lawyers and technologists down to infra-structurally solve for each local hurdle and allow the overall umbrella of exceptional experience to overarch geographies when it comes to the front-end experience?

To my mind, while alternative propositions of back-end parts of the experience are intrinsically embodying the overarching and their success is simply a matter of achievable scale and time to market for the winners (alternative lending, alternative payments and transfers and alternative currencies are all bigger propositions than all the neobanks put together at the end of the FinTech day) on the front-end to-consumer experience there is no consensus on what a winner looks like and no big wig is willing to bet a farm big enough to achieve that. If you don’t believe me just look at what percentage of the overall 12 (or 14 depending on who you ask) Bn $ investment in FinTech in the last year went to ABEers as compared to the investment in alternative rails.

Thinking about what money went into FinTech on the experience side and why there are no real unicorns yet is a demoralising exercise. This emperor of ours is rather naked. It’s one thing to complain about banks being slow, or marred with “no can’t do” or even dumb. That we can all cheerfully agree on, that we can excuse in a way. They can’t afford to do much or even dream big. But investors can. Should. Why is it that despite the noise they really do not?

My theory is that we all rushed to catch this wave – we went too fast and built too quickly without stopping collectively, as an industry to agree on what’s what. We have so much confusion in terms in banking today that if you sit 20 bankers from 20 banks down and ask them to write it down individually they may all define the process of lending or that of transfers identically the same but no two descriptions of a Banking Experience will be the same.


So here’s why I think this Gold Rush is really just a rush to apply gold leafs onto as many pieces of artsy copper jewellery as we can – we don’t know real value anymore and we’ve all invested in eggs in different baskets and we’re betting toy farms that consumers will take whatever we shyly funded as the Holy Grail of banking experiences and love us for it.

Is ABE going to be where bankers and investors meet in a muddy cage fight of courage in the following 2-3 years and battle it out till the ones with the strongest religion birth the Slacks? We can only hope so, we, the consumers waited long enough.