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Disrupting the Banks

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Written by Robert Koch

11 min read

There's a chart I've been facinated with ever since I was shown it. It presents the disruption that Uber created in the driving industry when it first entered the New York City market. Having near exponential growth for the first few years Uber quickly overtook the taxi industry in New York City. It's a stark reminder to stagnant industries that disruption can come when you least expect it.

NYC Monthly Taxi Pickups - via Todd W Schneider
NYC Monthly Taxi Pickups - via Todd W Schneider

Banks Used to Suck

The Australian banking industry before 2017 was in a similar situation. Due in part to the Mining Boom Australia was one of the only countries in the west not suffer a recession in 2008. With interest rates at a long term and stable low there was very little incentive for Australians to move banks or refinance their homes.

Additionally the lack of competition made the products provided by banks almost identical. A savings account with almost no interest, a transaction account with a monthly fee, credit cards that have huge fees and interest rates. This only grew resentment, but most customers didn't have any better alternative - as can be seen on the below chart until 2013 refinancing stayed quite low.

Refinancing of Australian residential homes - ABS
Refinancing of Australian residential homes - ABS
But in the last few years as home prices increased and real wage growth stagnated disapproval of the banks grew. This reached boiling point when the government announced a Royal Commission into banking practices in Australia. A commission that resulted in minimal change to the Australian banking system.

At around the same time a number of smaller "neobanks" started to begin operating in Australia, these banks were met with mixed success but lot of fan-fare as disgruntled customers were keen for a better deal.

Around the year 2015 the bulk of millennials started to reach the age where they had significant savings and full time employment. With that this mobile first generation started to look for a better way to manage their money.

Some readers might not know what a "neobank" is, if you're familiar with the traditional system of banking you'd expect a bank to have physical branches where you can go to deposit and withdraw your money. A neobank is different, for starters they have no physical branches and operate entirely online, because of this the types of services they provide are also quite different to a regular bank. Generally only providing basic transaction and savings accounts.

But neobanks have offered another product to consumers - Trust.

I've noticed in my work that trust, and good intentions can make the difference between a business succeeding or becoming a failure. Customers, especially younger generations are more willing to switch to a new service if it aligns with their morals and values more accurately1. This means that companies can no longer assume that their customers will stay with them just because they've been around for a long time.
This isn't an entirely new phenomenon, different industries have had reckonings when their customers have revolted, but banking is different. For one thing, banking has been a very conservative industry, taking a long time to adapt new technology and strategies. This is one of the reasons I believe that customers are changing banks in record numbers. Banks and other businesses now have to take into account their investments in fossil fuels, tobacco, military technologies, and social movements when considering market forces that will affect customer decision making.

This is also a deeper problem than what a PR blitz can fix, the underlying issues go beyond branding as any reasonably good marketing company can help a company look good.

The Rise of Neobanks

Up is a great case study about the success a business can have when it focuses on customer outcomes and not what the industry it's based in is doing.

Up Logo
Up Logo
When Up first came onto the scene in 2018 it already had a substantial following of people who had used the product in its beta stage. Because of how different and feature rich the product was the bank quickly became one of the largest in Australia with over 400,000 customers2 at the time of writing.

A Better Culture

In Australia the "big 4" major banks have roughly 73% of the Australian banking market, that's down from 79% in 2013^[4]. It's not enough for companies to do what their competitors are doing and simply catch up, doing so will only stop the loss of customers and will not be able to bring old users back.

Up differentiated themselves early on as not being your parents bank. They didn't have a home loan product, and they still don't offer credit cards. They sold the idea of a responsible bank that would help you save money and support initiatives that would help the environment.

Up expresses this difference on its social media, not using it for bland updates, you'll find its handle on twitter @up_banking sending memes and gifs to customers who are encouraged to share their "up stories" and anniversaries with the team. In fact their entire team is quite active on social media including their Co-Founder Dom Pym, CEO Xavier Shay, and Content Lead Anne Shea - something I don't think you'll see a lot of banking executives doing. Exposing yourself on Twitter is a pretty daunting thing to do, but it's a great way to show that you're a real person and that you stand by your product.

I asked some Up customers what they like about the culture and platform compared to their old banks and got a mix of different opinions. Matthew Timms put it together quite nicely;

The Australian banking landscape, prior to the wave of neobanks, was an impersonal hellscape. Banks served businesses & home loaners; there was no rush to make the individual banking experience any better.

Up, as a startup, needed to focus on user growth & they did so through developing an intuitive & enjoyable user experience which felt like a breath of fresh air. They scooped up millennials who felt neglected by big banks - they didn't own businesses nor mortgages. But they will in a decade.

So as the wave of neobanks comes to an end, as we see many of them close their doors, Up stands by far the most successful Aus neobank & a fascinating story of industry disruption. Pfhfhf I could start a podcast about it but it wouldn't be very interesting.

Photo of Matthew Timms
Matthew Timms
Software Engineer and Up customer

The story of Up's success if not a new one. There will be other companies that disrupt industries and innovate ultimately delivering better outcomes for consumers. The reason Up is so interesting is because it's a case study of how customer loyalty can be earned when a company embraces their customers.

Getting in my DMs

There are several examples of how Up's treatment of customers has differed, sometimes wildly from what other banks are doing. Case-and-point very recently the Osko instant payment system between banks went down resulting in all transfers in Australia going back to the 3-day wait time. While most banks only had a simple announcement stating there was a large scale event, Up sent hourly updates to its customers keeping them informed - some banks didn't event notify customers of the outage!

This is done via their in-app communication panel which allows customer support staff to talk to customers live without the need for a branch. Where traditional banks require a customer to travel to a branch or pick up the phone to get support all Up customers do is start a DM. Additionally the process is asynchronous - so you can do other things while you're waiting for a response. This is how disruption benefits consumers, while Up wasn't the first company to add live chat in-app it was certainly the first bank in Australia to do so and now most of them has some form of similar feature.

As you can see from the screenshots below the asynchronicity of getting support is a big part of the experience, allowing customers to go through their day instead of lining up at a branch.

Up's in-app chat functionality for support
Up's in-app chat functionality for support

Earning trust with consumers is an incredibly hard endeavour, a piece of advice one of my managers gave me not to long ago when dealing with this is to "over-communicate" - that's exactly what Up does with its customers and is what I see as the second reason that it's done such a good job at disrupting the hold the "big 4" banks have on Australia.

Features

The final reason is that Up is an objectively better product. When entering a market segment as a new-comer there are only one way that you can take customers from your competition - provide more value. You can generally do that in two ways, either make a product that has more features at the same price, or to make a product significantly cheaper. Athena Home Loans is a great example of the latter, as a home loan provider there aren't many features that customers really want besides the ability to own a home, so you have to cut the price of your product which is exactly what Athena does.

Hugo was the person that introduced me to Up way back in 2017. He's a software engineer and I asked what he was excited about when he first heard about Up.

I was pretty amped for a bank building a new take on banking, and delivering quickly at the same time.

Number one feature at the time was probably categorisation of transactions (groceries, life, home, transport, etc), and merchant identification.

Photo of Hugo MD
Hugo MD
Engineer at Cash App
Up is particularly interesting because it's able to perform a juggle of both these strategies. As a beta tester myself I remember being astonished at the number of features the app came with compared to my previous bank, what was even more bizarre was that the interest rate was better than my old bank and had no fees.

The added bonus of releasing new features means that people are more engaged with the brand. Wanting to have the latest and greatest is a powerful incentive to convince consumers to use your product. I asked a few people about what features they care about in a banking app and a point that Emma Scully made sums up nicely how Up has managed to attract a large group of followers.

Up has re-framed my online banking into more of a organisational and productivity oriented experience rather than just an app where one can view their balance and transfer money. You don't typically hang out for a new update or follow the Instagram page of your usual banking apps, but Up brings exciting new features that actually gets you following your bank's social media to keep up.

Photo of Emma Scully
Emma Scully
Research Engineer and Up customer
Up also ties in its strategies of over-communication and new features together with a public road-map - Tree of Up. Instilling a sence of excitement and anticipation about a product keeps customers highly engaged. This is the exact opposite of how most companies treat their feature releases - secret and sporadic. Up flips that paradigm by showing what they're working on and the timeline that they're expecting to release it. This approach gives customers a feeling of trust that there will be future value on the platform because they can see that more features and products are on the way.
Tree of Up
Tree of Up
There are a lot of lessons that can be learnt from Ups impressive rise to the top, the most important for businesses is to listen to what your customers want and build around that framework - stop looking at what your competitors are doing just focus on building a great customer experience3.

Final Thoughts

Don't stop innovating. Like in the case of Uber - when an industry stops innovating it will eventually be disrupted. A new business model or company that can shake up the market will do it. If Ups success indicates anything it's that if the banking industry can be disrupted, any industry can be.

Footnotes

  1. So the statistic I read this for I forgot to write down but this article by Fast Company talks about a similar trend of millennials preferring to work at a sustainable company over a higher paying job.
  2. It's on the wiki
  3. This is actually something that Amazon prides itself on as well, by not looking at what competitors have done and listening to customers some of AWS most successful services like RedShift and Aurora have been released.
Robert Koch Avatar

👋 I'm Robert, a Cloud Architect working at AWS in Melbourne, Australia. I write about a bunch of different topics including technology, science, business, and maths.

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Kochie Engineering 2020