• David Titterton, Engagement Director – Banking, Insurance and Financial Services at Monstarlab


• 20.04.2023 04:30 pm
#banking

With many firms yet to launch a mobile app for their savings customers, Monstarlab’s David Titterton, Engagement Director – Banking, Insurance and Financial Services, makes the case for making this leap into the digital era in 2023.

Current State of Market

While many banks already offer mobile app-based savings products to their customers, several have yet to make the transition, delaying it until the investment case is more robust. But is there a right time to launch such products? It’s a question I’ve been exploring with peers in the savings industry through the last few years.

App-only or app-enabled savings products are clearly on the rise, however they aren’t yet at critical mass. A recent check on Moneyfacts (Jan ‘23) revealed that only 20-30% of available savings products came with a mobile app option, depending on product types.

Many of the digital challengers emerging in recent years – Oaknorth, Tandem and Atom to name a few – only offer their savings products and services through an app. And most of the UK’s large retail banks have followed by adding mobile apps alongside their traditional channels.

An app-only offering doesn’t appear to hamper growth. The mighty Chase managed to attract almost £8 billion of deposits in a couple of months (albeit with a current account offer and a huge level of investment). An impressive, yet more realistic benchmark for most is Zopa’s Smart Saver product - again entirely app based - attracting over £2 billion in deposits in less than a year.

But while the digital challengers have inspired some of the more specialist savings banks and building societies to launch such products – including Newcastle and Nottingham (via Beehive) Building Societies, and Ford Money and RCI banks – many large building societies and dominant savings banks have not kept pace. At time of writing, neither Coventry or Leeds Building Societies offer an app, nor do Charter Savings, Shawbrook or Aldermore banks, amongst others.

However, there’s positive noise that some of these larger players are planning to launch mobile apps soon. If true, this will surely catalyse others.

Why so many remain behind the app curve

Several factors have seemingly deterred providers from making the investment. First, liquidity requirements. Many firms, particularly smaller ones, require only a modest level of funding from a market with plentiful supply. In recent times, it has been relatively straightforward for providers to enter the market with an attractive interest rate, secure the required funding and pull back out. 

Whilst the erratic nature of this approach has inflated their cost of funds, the overall impact has been manageable in a low-rate environment, and allowed them to put off the addition of an app. There are concerns that a mobile app-based easy-access product makes it easier for customers to take their money out, presenting another liquidity variable to be managed. Changing market conditions and regulatory expectations on customer outcomes should provoke firms to take a fresh look.

Second, many providers have been actively targeting high average savings balances by targeting a cash-rich, financially savvy, retired customer demographic. A commonly held view was that this type of customer had less appetite or need to interact online or via an app for savings. To what extent that was true is unclear, however it is clear that the COVID19 pandemic triggered a significant uplift in digital banking engagement for the over 65’s.

Third, some deposit taking specialist lenders have been put off by the more limited opportunity to promote their lending products to mobile app customers. It’s true that it is less likely that a retired 70-year old saver will also require SME finance or a specialist mortgage, compared to a different target demographic. However, with improvements in tech and data, a mobile app can gather intelligence that allows banks to identify and extend a highly personalised offer to those that might. 

Despite the regular engagement offered by an app, some fixed-term bond providers remain skeptical of its necessity, other than as bonds approach their maturity. Fourth, is a lack of capacity and capability inhouse. Even banks and building societies bought into the value of an app, may have been unable to move forward due to more pressing commercial priorities and a demanding regulatory agenda. Furthermore, the skills and experience to design and deliver a mobile app often don’t reside in-house, thus the high demand to hire and onboard external consultants and digital agencies.

Fifth, is limitations in systems and architecture. Those running more dated, on-premise systems face higher costs and extended timescales to make the changes required. A lack of available skills to develop API’s on aging systems is a major constraint for some, as is a reliance on third-party systems providers to update their systems. Confirmation of Payee regulations is acting as a positive force in bringing some API development forward in the industry.

And the final factor is the availability of budget. The costs of building and running a good quality mobile savings app are not inconsiderate. There is also a need to plan regular releases to maintain  expectations, which need to fit alongside the daily demands of the market. Some firms have underestimated these factors and, after launching to market, apps have been left to stagnate, eroding value due to the lack of ongoing investment needed to deliver an engaging experience. In some cases, these apps can do more damage for engagement and brand equity than good.

Eight reasons why 2023 is the year to launch a savings app

Despite the many valid deterrents, few savings providers can now afford to put-off the move to launch a mobile app. Here’s why.

1. Market conditions. Increasing rates has prompted many more savers to move their money from the low interest accounts on offer from their retail bank account provider into a competitive savings account. This is a great opportunity for firms to attract new money by broadening their proposition with a mobile app offering.

2. Increased competition. Banking-as-a-Service providers (eg. Starling and Griffin) will open up the savings market to a new range of providers, leveraging the tech, banking license and balance sheet of the BaaS provider. Existing providers will need more tools at their disposal to defend this threat.

3. Customer expectations. A growing number of customers value the ease of use and engagement a mobile app offers, and they simply expect this to be available. With aggregators (e.g. Moneyfacts) allowing customers to easily filter products with an app, the impact is a shrinkage in the addressable market for those without.

4. Customer engagement. Our experience of savings apps indicates that an easy access account holder will engage with a savings app (on average) 4-5 times per week, versus 1-2 per month via a web browser . The data gathered from an app will help banks better understand customers' likes and dislikes and improve the proposition.

5. Customer communication. Push notifications on apps are a great way to proactively and efficiently message customers. This opens up opportunities to check understanding (a nod to Consumer Duty) and potentially introduce new products and services. An app certainly provides the ability to communicate in a more efficient, cost-effective manner.

6. Operational efficiency and sustainability. The opportunity to communicate better, quicker, cheaper translates into a benefit felt by the customer support teams. This agility allows firms to significantly mitigate the impact of those events that traditionally drive contact, plus the ease of deploying AI chatbots for enquiries, both serve to dramatically reduce operational costs. Digitised documentation also brings print costs and helps banks accelerate their net zero objectives.

7. Agility and futureproofing. With a highly disrupted market and rapidly shifting consumer expectations, firms need a more dynamic way to interact with the market. The agility to make changes quickly (e.g., repricing) and gather intelligence is essential. These needs can be met through a mobile app.

8. New target demographic acquisition. A recent report by Kings Court Trust shows that an estimated £200 billion of assets were passed down through inheritance in 2022, a number that is set to increase steadily in years to come. This great wealth transfer presents a material threat and tremendous opportunity for firms however they must be open to new customer models and propositions to succeed. A mobile app proposition is one of the essential components of such a millennial proposition.

Start your mobile app journey

Access to the necessary talent and skills across strategy, experience, tech and data is a challenge. So too is finding the capacity to work on your savings app, amongst other priorities. For firms facing this dilemma, or without in-house capabilities, finding a knowledgeable and trustworthy partner will prove essential.