Will banks survive the onslaught of tech?

Cofounding a fintech startup has got me in front of some pretty senior audiences from the banking industry recently.

There’s a strong temptation to be bombastic about the rise of startups in the thought-to-be impenetrable world of retail banking.  But far more certain to me than who will be amongst the giants of tomorrow is how and why they’ll get there.

I presented to a fintech audience in April and a friend in the audience called it my “Greed is Good” speech.  Gordon Gekko never uttered those exact words in the original Wall Street film and I didn’t actually say it, but “choice is good”.

It’s a painful reality for big players to stomach but in today’s world, people won’t do what their bank tells them to.  This isn’t because they hate their bank – it’s because of a fundamental shift in who’s in charge of consumer behaviour. 

We used to get most of our information from mainstream news media and advertisements, plus a bit of kitchen table gossip.  Now peer-to-peer conversation has taken over and become a mainstream news source thanks to global real time communication networks like Twitter and the other usual suspects.  The only reason these platforms grew to global dominance was because people started to prefer them.  And because of their nature, people can exercise their preferences about who to listen to within these channels.  By extension, we have become highly selective about what to try, use or buy.

As a startup Droplet is utterly beholden to our users.  If they don’t like our product, they won’t use it and we will fail.  In fact, for us to succeed, we need people to love our product so much that they tell everyone they know.

Bigger businesses struggle with so-called disruption because they’re finding it hard to cope with the new reality that you just can’t tell people what to do any more.

We’ve seen it in droves from incumbents in our sector of mobile payments.  The pattern of failure is surprisingly similar: established player announces new product that’s “coming soon”.  Then usually there’s mention of the large number of customers they already have, the reach they have through partnerships and the amount they’re going to spend on marketing.  Then it all goes quiet.  The project disappears.  Industry insiders whisper about £100m write-offs, or blame stakeholders for not reaching consensus.

As a startup entrepreneur, hearing this respect of O2 Wallet, Weve, V.me and MasterPass was of course music to my ears: proof, surely, of the classic “innovators’ dilemma” facing big businesses.

But the mistakes they made are much more straightforward and “innovators’ dilemma” is an intellectually lazy explanation.  These projects failed because they didn’t listen to their customers, and find out where the shoe was pinching.

This is not about market research or customer feedback, because you can’t reliably ask people what they’re going to think or feel about doing a new thing in a new way when you don’t have a proper product.

If you’re a traditional marketer, you’re used to agreeing your message, segmenting your audience, and then planning and aligning each of your communications channels to deliver a consistent, carefully controlled and well-funded campaign across a series of months.  But in digital, planning way ahead in detail when you’ve not yet started is folly.

If you’re right about everything then it will work – and it does, one in a hundred times.  Successful digital strategists enter the market product-first, so they can test reaction.  Then they test different marketing or go to market tactics in the same way – dialling up the ones that are working, and removing the ones that aren’t.

The reason these big projects failed is because they were big projects, not because they were created by big businesses.  They launched as if it was 1995, not 2015, and that meant they only gave themselves one meaningful shot at success.

Sometimes the signals that suggest people actually like something can be faint at first, which is where the second problem comes: measurement.  In mobile, big brands launching digital products like traditional campaigns focus on metrics like engagements, download numbers and transaction volumes – but these lose the signal in their own self-generated noise.  When only 5% of people are still using the product after a month (the average for apps), they have nothing to explain why.

Measuring things like retention rates, and talking to customers (another benefit of a low-key, digitally led initial approach), will lead you to the indicators of success that can then be repeated at scale.

My personal opinion is that the mindsets in big business have already started to change.  Someone senior in a bank recently told me to remember that it takes startups a lot less time to realise the wind has fallen out of the sails than it does big institutions.  They were talking about one of the remaining big industry plays that hadn’t even launched!

For established players to have a chance of success in the world I’ve just described, leaders need to continue to drive a change of mindset, and then change the way they measure success.

Startups succeed over big businesses not (just) because they’re smarter, better attuned to their audiences and free from incumbency.  They succeed because they’re tenacious enough to adjust, adapt and shape shift as they go – sometimes failing altogether and rebooting – until they find the thing that people actually like.

Droplet is a fee-free way of taking cashless payments.  We’re a group of nice people at a tech startup, not a traditional financial institution.  We don’t charge our users or merchants any fees or monthly costs, ever.  No extra hardware/NFC tech is required to take Droplet payments, just a compatible smartphone or tablet.  We make money from optional bolt-ons that merchants pay for like loyalty – which means customers can collect rewards seamlessly on their phones when they pay.