Banking Innovation: The 5-Step Approach

How are traditional banks holding up against fintech disruptors like Monzo and Starling? The answer may not surprise you. But, while neo and challenger banks have revolutionised the customer experience, traditional banks are very much still in the game.

In our latest guide, Taking on Neo Banks: Your 5-Step Guide to Innovating in Banking, Jon Hart, Moneyhub API Partnerships Director, reveals how banks can overcome legacy challenges and embrace modern innovation. Here’s a sneak peek into the guide's key insights:

Overcoming Legacy Challenges

Traditional banks often face numerous hurdles when driving innovation, rooted mainly in the following:

• Legacy attitudes: Long-standing beliefs about customer loyalty and in-house tech development.

• Legacy technology: Outdated systems creating technical debt.

• Legacy thinking: A product-first mindset.

Neo banks, unaffected by these constraints, can innovate rapidly, offering seamless, customer-centric experiences that traditional banks struggle to match. However, all is not lost for incumbents.

Shifting to a Customer-First Approach

Today's digitally savvy customers demand real-time, personalised interactions. Transforming from a product-first to a customer-first approach is not just beneficial - it's essential. This means deeply understanding customer needs and preferences to deliver services that genuinely enhance their financial lives.

Leveraging Innovation Labs

Many banks are turning to Innovation Labs to pilot new ideas swiftly and cost-effectively. Key success strategies include:

• Staying Lean: Fail fast, cheaply, and often while learning continuously.

• Defining Success: Establish clear, measurable success criteria upfront.

• Ensuring Adoption: Maintain strong stakeholder management and executive buy-in to transition successful pilots to full-scale adoption.

Partnering with Fintechs

Strategic partnerships with fintech companies can inject the agility and innovation necessary to overcome legacy resistance. These partnerships allow banks to enhance customer experiences and drive innovation at a previously unattainable pace.

Implementing Digital Engagement Layers

Legacy technology often hinders innovation. However, digital engagement layers can bridge these gaps by offering modern, enhanced customer experiences on top of outdated core systems. This approach allows banks to innovate rapidly without extensive overhauls.

Unlock New Possibilities Today

Innovation is crucial for traditional banks to meet customer expectations and remain competitive. Banks can accelerate their innovation journeys by addressing legacy challenges, forging fintech partnerships, and adopting a customer-first mindset.

Ready to Innovate?

Discover actionable strategies and detailed steps to drive innovation in financial services. Download Jon Hart's complete guide to dive deeper into these transformative insights.

Download the guide

Monzo and the pensions revolution

Monzo, the UK challenger bank, has been a key player in the fintech space and encouraged  wide adoption of Open Banking from Gen Z and Millennials. It recognised consumers’ desire for an intuitive, digital solution that enables them to manage all of their finances in one place - offering account aggregation, categorisation, and credit scoring through their Monzo Plus solution.

After its plans to move into the pensions market went public in 2023, Monzo has announced it will be launching a new pension consolidation solution that finds users’ pension pots and brings them into one fund, accessible through the Monzo app.

The announcement comes as Monzo’s research revealed that 51% of UK adults don’t know how much they have saved for retirement. It asked 2,000 people what would make engaging with their pension easier, and 38 per cent said a process that felt more accessible to manage alongside their everyday finances.

Pensions engagement in the UK

Earlier this year, we conducted our own research into consumer attitudes towards their pension and investment providers. We found that:

• 36% of 35-44 year olds said too little information from their providers was putting them off adding to their pension or investments

• 2 in 5 (42%) of all consumers say they don’t find it easy to interact with their providers

• 4 in 5 (79%) consumers “could save more money” if they had one app to view and manage all their banks accounts and financial products

And this lack of engagement is having a detrimental effect on financial health. Recent research has shown that around 88% of individuals with workplace pensions have at least one pension that remains unclaimed and there is an estimated £26.6bn of lost pension pots in total and nearly 1 million pensioners in the UK are living in poverty. 

The power of ‘all in one place’

A holistic approach can lead to better outcomes, and it begins with aggregation. Bringing pension pots together helps people understand their true financial position, and answer important questions like “will I have enough?” or “when can I retire?”. It also helps people make better informed decisions based on the performance of their pensions, both financially and ethically, and explore options such as consolidation. 

At Moneyhub we would go one step further and bring other investments such as savings, shares and even property into that view. Quite often people will take a lump sum earlier than or draw down faster than they need to when they have other options open to them. 

Monzo’s solution reflects what we are seeing from major players within the pensions industry; pensions are one piece of the puzzle, and need to be understood in the wider context of someone’s financial world. 

Providers such as Mercer, Standard Life and Scottish Widows are taking a proactive approach to helping members engage with their pensions and understand what they have, and what they might need for a comfortable retirement. By using Open Finance to position pensions alongside daily spending, savings, investments, properties and all other financial accounts, these firms are increasing engagement and enabling better financial futures for their members.

The future of pensions and Open Finance

Monzo’s announcement came hot on the heels of the King’s Speech (17 July 2024) in which it was announced that the Government will bring forward the Digital Information and Smart Data Bill, as well as a Pensions Scheme Bill.

Paving the way for Open Finance legislation, the Smart Data Bill seeks to set a clear framework for consent-driven data sharing, offering new opportunities for innovation to firms, and improved transparency, products and services to consumers - meaning there’s plenty of scope for further pensions transformation, through pensions dashboards and beyond.

If you’d like to find out more about what Open Finance can do for your business, and your customers, just get in touch →