With the rise of fintech challengers and recent innovations in digital banking, banks now have the opportunity to truly differentiate their brand through digital products and services that directly reflect the mission and values of the bank.

This is the first of two posts on financial services branding, co-authored with Ross Republic’s brand transformation lead Terry Tyrrell. You can find the second one here.

In the digital banking era, a brand is only as good as its product

Brand strategy defines what makes a company relevant to its target audience and how it differentiates in the markets it operates in. The standard playbook for brand differentiation is to create aspirational associations around a company’s offering, which over time boost margins and customer loyalty.

In banking, however, this mechanism was rarely utilised, as Terry points out: “Brand building was historically not an important cornerstone for competitive advantage, typically relegated to superficial and short-lived communications and advertising campaigns with little substance in terms of reasons to believe.”

Shareholder value was mainly generated via fortifying superior real estate presence and pushing generic financial products through linear distribution channels, i.e. branches and direct sales networks.

The high barriers of entry due to complex regulation and high switching costs for customers made this model bulletproof. Terry clarifies: “For legacy financial services companies, aspirational associations and substantiated competitive advantages beyond product perks and pricing, were difficult to achieve.”

Top-down corporate brands have been dominating the traditional banking landscape, with reputations damaged through false claims exposed during the 2007 – 2008 financial crisis. Only a few have managed to recover.

Due to changing regulations, the barriers of entry into financial services have significantly dropped. That’s how new fintech challengers emerged, with digital product innovation, customer-centricity and agility at their core. They built their brand by radically focusing on a subset of users and providing a superior digital customer experience.

Offering financial services through digital channels clearly served unmet user needs. For example, fintech companies whose initial product offering was a current account or credit card have collectively added 54 million user accounts globally.

The traditional value chain upon which financial services brands are built has been reconfigured.

New technologies, distribution models and digital services have profoundly changed the way financial products are consumed. That’s why the traditional value chain upon which financial services brands are built has been reconfigured. Even more important than investing in aspirational associations, now the key driver of brand success in financial services is to create tangible product innovations and experiences that deliver customer value. Terry notes: “In the digital banking era, a brand is only as good as its ability to empower, create seamless experiences and personalised connections with its customers.”

This effect is amplified by the fact that any brand can be a bank by utilising open banking and banking-as-a-service: Any company with strong brand equity, distribution power or a strong online business can seamlessly embed banking-like functionalities into their customer journeys (€).

Customers now have indefinite choice and high product experience benchmarks. Blurred industry boundaries pose a challenge for traditional bank brands, as Terry explains: “There is also a danger of product proliferation and confusion for customers – it’s not about banks anymore, but about banking. As Bill Gates said: ‘banking is necessary, banks are not’.”

With digital banking becoming a red ocean, incumbent banks need to figure out how to manage their legacy master brand portfolio, while simultaneously launching new competitive digital offerings to expand into new markets or customer segments.

According to Terry, this sets up major brand architecture challenges:

“How close or how distant should digital offerings be to the legacy brand to be attractive and credible to existing and new customer segments? Evidence from the UK shows that only one in 10 Brits would prefer to use a digital-only bank over a traditional one. Nearly two in five Brits are wary that their financial data will be shared by digital banks with other providers under the new ‘open banking’ rules. Only a few have cracked this, for example B from Clydesdale and Finn from Chase closed, while Tangerine from Scotiabank is still going and Digibank succeeds as it links to its parent DBS.”

Read here how we constructed a new framework for managing financial services brands in the digital era.

About the author

Adrian Klee, partner at Ross Republic
PARTNER, DIGITAL BANKING

Adrian Klee

Adrian is an expert in building digital business in the financial services sector. He has a background in Fintech and Consulting, and specialises in market research, digital service development and lean venture building.

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