Picking up the pieces – Wells Fargo woes and the rise of the challenger banks.

On the 7th February 2019, Wells Fargo became the latest victim of technical woes. Customers were left unable to use their debit cards or access their online accounts.

In today’s constantly-connected world, this technical failure is about much more than inconvenience – it’s about broken trust. And that broken trust seems to have driven huge numbers of customers straight to the digital doors of challenger bank Chime. The situation is grave, and it’s not only confined to Wells Fargo. After one of the most turbulent 12 months for technical hiccups and online meltdowns, established banks must fight back if they’re to contend with the growing number of innovative, agile challenger banks like Chime.

Angry Wells Fargo customers = Happy upstart banks

Chime is one of the fastest-growing bank account providers in America. Based exclusively online, among their features are no hidden fees, savings that grow automatically and receiving payment from direct deposit up to two days earlier. They say that it’s “banking the way it should be”. And it seems that many agree.

When Wells Fargo ground to a halt, Chime added 10,000 new customers in a matter of 24 hours – a company record.

“We definitely saw a huge uptick in consumers reaching out to us on Twitter and other social media channels, with the general sense that a lot of them were just at the end of their rope. We even had some dialogue like, ‘Hey, should I switch to you guys? Why should I switch to you guys?'” Chris Britt, Co-founder of Chime

Chime are one of numerous challenger banks that are making waves in the financial services industry – Monzo, Atom Bank and Starling Bank are other promising examples. 28,000 people open a Monzo account every week; Atom Bank, which launched in 2016, has 34,000 customers; while Starling Bank now has 460,000 customers and has just raised £75M more for expanding further throughout Europe.

Younger generations make up a huge proportion of those who are opting to switch to challenger banks, with one in four people under the age of 37 having made the switch.

For established banks, the threat is real AND it’s growing. So, what can established banks do to take the fight back to these ambitious and rapidly expanding banks?

Goal number one – Improve reliability and regain lost trust

First, established banks have two fundamental concerns – trust and reliability. Trust has been eroded in recent years owing to a long line-up of scandals and data breaches – PPI, rate fixing, mis-selling, ‘dark pool’ activities, Forex rigging and money laundering – to mention but a few.

Then there’s the problem of plummeting customer faith in the reliability of their banking services. Lloyds, Santander, Natwest, RBS, Ulster, Barclays, TSB & HSBC have all had technical failures (some multiple) in the last couple of years (it appears that none of the major British  banks have been immune).

Goal number two – Deliver innovative, competitive, digital banking

81% of consumers now use mobile apps to manage their finances; these people expect their experience to be seamless – going beyond basic functionality offered by online banking. HSBC’s Connected Money app is one example of a traditional bank being ambitious with the technology they have to offer their consumers, but more needs to be done to claw back the initiative from the challengers and the gauntlet that they have been laying down.

Goal number three – Personalise

Customers expect security, speed and a solid customer experience. But beyond these basic requirements they now also want banking to be built around them and their needs.

The 2018 World Retail Banking Report highlighted a few interesting stats when it comes to what consumers are looking for:

  • 49% of customers claiming a positive experience with their bank said that they had been offered personalised services
  • 59% said they are looking for tools to help them monitor their monthly budget, with real-time adjustments based on their spending
  • 54% want specific real-time offers based on their location (e.g. retail offers based on location and credit card activity).

Traditional banks already hold vast amounts of data to help them in their bid to deliver highly personal experiences, but they have historically struggled to use it in a way that provides this personalised experience to their customers.

The clock is ticking for the established banks. To use a doomsday clock analogy we are at least a minute closer to midnight and a failure to start re-establishing trust, demonstrate innovation and personalise their services is already leading to an erosion that could have serious consequences later down the line. This is the wake-up call, the question is if the established banks are willing (or able) to change. Cut out the service interruptions and downtime and focus on their products from a customer perspective. Do this and they might be able to start earning back the trust that has been slowly ebbing away for some time.

Does that compute? Robo-Advisers and the digital AI trends shaping the Financial Services markets.

Consumers are becoming increasingly open to the use of robo-advisers and AI to help inform and solve the issues that they face in their everyday lives.

Phone assistants like Apple’s Siri and Google Assistant and in-home devices such as Amazon’s Alexa have become common place when looking for the latest football scores or finding out what the weather is going to be like this weekend. Robo chat support is also becoming ‘the norm’, there to try and answer the simple questions quickly and efficiently without the use of a human resource, (although some, myself included may argue about their effectiveness), before guiding you to a human if required.


Investment in AI technology is at an all-time high with forecasts that it will hit $4.5bn by 2021. But with the growing use of artificial intelligence it is perhaps interesting to see that only 5% of finance companies have adopted chatbots (compared to 36% of real estate businesses).

“The #1 reason people dislike calling companies: not being able to speak to a real person right away” – Newvoicemedia.com

Your robo-adviser will see you now

Robo-advisers in the financial sector are becoming a more and more common experience for consumers. In mainstream banks, Natwest launched an AI service in 2017 targeted at customers that wouldn’t usually have access to traditional investment services, with  Santander following suit a short while later with a service specifically targeted at first-time investors. Betterment and WealthFront have robo-financial advisers for investment; SoFi Wealth boasts one for borrowing, saving, spending, investing and protecting, and Bloom provides a robo-advisor to guide customers through their pension options. Not all services have been a success though with UBS closing their service to new customers in 2018 and Investec doing the same in may this year after it racked up losses of £13 million. But beyond the economics where do consumers draw the line between the areas where they are willing to take this kind of advice and support vs. where they want to speak to a human?

A Test Case: Making big decisions using AI

Spurred on to create a mortgage product by the drawn-out application process, it’s fair to say that Habito’s CEO Daniel Hegarty is disrupting the long-standing traditions of the mortgage market.

Launched in 2016, Habito has a simple aim – to help consumers get the best mortgage possible, fast. Offering free mortgage brokerage to the client, this platform is based entirely online and they pride themselves on being jargon-free.

“We are committed to saving our customers time, stress and money and plan to deliver customers unprecedented choice, ease, speed and certainty over their mortgage in 2019.” Daniel Hegarty – CEO of Habito

Habito entered, and still operate in, a market that is deeply fragmented, with the biggest player staking a claim to just 6% of the market (attributable to London and Country). Habito could point to an interesting shift in consumer behaviour when it comes to trust in robo advisers, after all, our mortgages are one of the most important decisions we make in our lifetime – and certainly the largest debt for the vast majority of us.

This mortgage firebrand grew 20% every month over their first 16 months in business. By 2017, Habito had lent £250m to 50,000 borrowers, and had expanded their team to 45 (from 8 at launch). Their efforts have not gone unnoticed either with an award for ‘Innovation in the Delivery of Financial Products’ in 2018, and a balance sheet that has skyrocketed from £1.2M in 2016, to £5.1M in 2017, onto a cool £18M in 2018.

“While we welcome anything that speeds up the often torturously slow mortgage application process, face-to-face advice or over the phone will have a place for a while yet – although mortgage lenders and brokers need to improve their technological offerings”. Jonathan Harris, Director of Independent Mortgage Broker

Companies using AI for these purposes tread a fine line between the capability of the technology to answer customers questions quickly, provide accurate and actionable advice or suggest the right products or services for the consumer and the frustrations that can arise when AI just is not quite fit for purpose … yet. AI is developing fast and will no doubt get to a point where these frustrations disappear but, at least for now, it’s a delicate balancing act. Watch this space the smart robots are coming.

Learning from SMEs – what David can teach Goliath

You’re probably familiar with the concept of a ‘skunkworks’ … an “environment that is intended to help a small group of individuals design a new idea by escaping routine organizational procedures”. The term originated during World War II when the P-80 Shooting Star was designed by Lockheed’s Advanced Development Projects Division in Burbank, California. The term has been generalized to apply to high-priority R&D projects at large organizations which feature a small team removed from the normal working environment and given freedom from management constraints. Other famous skunkworks have included the Apple lab of about 50 people – behind the Good Earth Restaurant in Cupertino – established by Steve Jobs to develop the Mac computer. The skunkworks is a great example of a big company trying to think like an SME.

At the end of last year Ikea announced a plan to streamline its management to help rediscover its entrepreneurial spirit. It had become too slow and bureaucratic. Ingka Group, Ikea’s parent company, is a behemoth … employing 160,000 people across 30 countries. Ingka’s management realised that it had evolved a structure that made it harder to make quick decisions close to the customer. It’s redesign was intended to make Ikea more simple and efficient, shorten the decision-making process and make it more agile.

So often we talk about what SMEs can learn from their larger brethren, but actually this should be a two-way street. Big companies are inherently complex beasts, but their size doesn’t have to lead to sclerosis! Big companies may look enviously at some of the traits of smaller companies – their agility, flexibility and focus – but they can’t just pretend to be small and nimble. They must actually be able to act small too. ‘Thinking Small’ may well be the next corporate strategy!

So what can big companies learn from SMEs? Here are a few thoughts …

1.     Customers are precious: treat them as individuals and with the mindset that your future existence depends on keeping each and every one of them happy. Zappos is a great example of a $2bn business acting like a small company when it comes to interacting with its customers. “it is a daily quest for every Zapponian to “WOW” our customers in new and wonderful ways”.  Zappos famously empowers its employees to deliver best in class customer service. Huge companies can still feel authentic and approachable if they allow their employees – the ones who are genuinely local to their customers – to express themselves and tailor how they deliver, present and manage their products or services.

2.     Think fast – make key decisions more quickly: Many large businesses are characterised by silos and bureaucracy … needing time to make decisions, which often means  stifling or slowing down key decision making. In streamlining its management, Ikea is looking to address a slow and bureaucratic decision-making process. By stripping out layers of management it aims to become more agile. For businesses that can’t ‘just’ strip out layers – skunkworks sidestep this issue by creating this more agile environment outside of the parent business

3.     Encourage risk taking – finding a better balance between defensive and offensive behaviour – smaller companies may be more focused on breakthroughs rather than incremental change, and managers in larger corporations are more concerned about loss avoidance or avoidance of failure (as this would negatively impact their career).

4.     If the current rules don’t suit, then move the goalposts – Large businesses focus on doing the best they can within the accepted ‘rules’ of the market they operate in. If the rules need to be bent, broken or completely rewritten to move forward, or to make the most of limited resources – then SMEs are more inclined to create new rules.

Hyatt learnt this lesson – In 2016 it announced the launch of its Unbound Collection, an Airbnb for independent boutique hotels. This global collection of unique and independent stay experiences maintained a distinct character while providing guests and owners Hyatt’s award-winning customer loyalty program, robust operational and marketing resources and trusted, quality brand. Their market is being disrupted and they must adapt. This “old economy” company identified its core strengths to which it could apply “new economy” rules.

5.  Ensure all employees understand the business model – In SMEs, it’s more likely that everyone understands how the company works and how customer value is generated and delivered. In larger companies, the corporate knowledge base tends to be more fragmented and so fewer people understand the business model holistically. The advantage for SMEs is that it is easier to get everybody to sign-in, to move in the same direction and to feel ownership

Decision Architects have spent many years exploring the SME sector – how to define it, how SME owners see the world, what lessons can be learnt. For more information see our recent presentation