Tech-tonic shift: what does the Virgin CYBG merger tell us about the future of retail banking?

The past ten years have shaken up the retail banking scene. CYBG’s proposed purchase of Virgin Money for £1.7bn is another sign of the times. Behind the numbers in the headlines lies another key strategic reason – matching regional reach and loyalty with the capability to answer the growing digital demands of modern consumers. Building this loyalty is key in an increasing competitive retail banking sector.

The large banks have both strength and challenges with their own IT departments and legacy systems. While many are investing in digital transformation to revolutionise the customer experience such as Santander and HSBC, these are still based on segments or basic analytics like “spend by vertical”. Others are lagging behind: TSB’s recent meltdown during the transition to a new IT system shows that the process can risk customer loyalty.

Meanwhile, fintech start-ups that specialise in a digital-first approach to customer experience are growing rapidly but in a constant need to finance their growth. Let’s take Monzo for example. We’re seeing more and more luminous orange cards dotted about the place, often accompanied by an ever-eager client base of young consumers demanding contextual services. They are capturing the next generation who will become a key profitable segment in the future. However, Monzo’s most recent results show staggering losses. Ultimately, the demand is there, but the investment isn’t. The fintech approach may be risky but is shaking up consumer expectations significantly.

Mid-sized banking institutions like the CYBG group are ideally placed to rapidly challenge the status quo without the funding risk, by building on digital-first approach mixed with their regional/personal appeal. This unifies the branch and online experiences and means staff can give a more human feel to banking and focus on the next best experience for the customer.

As regulations ensure customers have more power to vote with their feet, banks need to be thinking not just digital-first, but experience-first. The human touch might still be valuable, but banks will struggle to deliver this without ‘smart’ technologies to support this.

By Ian Matthews, Data Evangelist at NGDATA