Fintech in America: Lessons from across the pond

UK fintechs have lessons for US digital banks

By Giffard Hogge, Product Manager, Somo

The UK and the United States share culture, history, and language. But it is only after moving from the UK to live in the US that I have become more acutely aware of the more subtle differences between our societies. They say fries, we say chips. They say subway, we say underground. They say ‘cash or cheque’? We say beep.

It is uncharacteristic for the US to lag behind anyone when it comes to technology. But when it comes to consumer fintech, the US still has practices that would seem backward across the Atlantic, such as the inconsistent availability of contactless mobile wallet payments, or having to pay wire transfer fees, or the convoluted minimum deposit requirements and overdraft fees associated with personal accounts.

So why is the US lagging? By investment measures, the scale of US fintech far outstrips that of the UK: $17.3 billion dollars to $4.9 billion. With this in mind, it’s something of a surprise that the UK is seen as a leader in this space.

Mind the gap

Analyzing the leading fintechs from each nation, we can see where the differences arise. The US fintech landscape includes brands such as Stripe, Square, Betterment, and Robinhood – all focusing on the payments infrastructure and personal financial management. In the UK, it’s brands such as TransferWise, Monzo, Revolut, and Funding Circle.

Within the top 10 largest fintechs in the US, there isn’t a single retail banking provider. In the UK, there are three: Starling, Monzo, and Revolut. This lack of overtly consumer-facing tools is reflected in the level of fintech adoption in the two markets. EY’s recent research puts the US at 46% fintech adoption, while the UK is at 71%. It’s worth noting the countries with the highest adoption, have difficulty accessing traditional banking infrastructure.

UK regulators open, EU too

There are a few reasons why the fintech product scene has flourished in the UK and not here. The UK has a very favorable regulatory environment built to encourage innovation and risk-taking – whilst across Europe strengthening consumer protection regulation has led to the Open Banking APIs that mandate all banks to provide an API to their customer data. This dramatically simplifies the process of building products on top of banking data.

On top of this, these brands are meeting consumers with raised expectations. The high-levels of digital bank competition means there are high expectations when it comes to customer service and digital customer experience. Finally, there is simply lots of money and a plethora of talented people. The free movement of goods and capital within Europe raises the talent and VC funding pool to nearly an equivalent size of the US.

The gap between the two markets spells a huge opportunity for US fintechs. Not only are consumer expectations rising with other products delivering first-class digital experiences, but the current health crisis has further underlined the urgent need for more robust digital offerings. These factors are shifting the landscape and removing the regulations that have held US fintechs back.

Now is the time for US-based financial institutions to look to incorporate the practices of the organizations currently eroding the UK banking incumbents’ position and offer new customer experience-led products. Instead of waiting for the market and competition to catch up, US fintechs need to understand the three defining characteristics that are driving the rapid growth of consumer fintech products.

User centricity drags

Incumbent banks preach the value of user centricity. They probably also have a fully-featured and very expensive user testing lab. But the truth is, none of them have built their business around it. Neobanks in the UK are constantly soliciting ideas and feedback from users, and most importantly, visibly incorporating it into their product.

Customer service leads

Customer centricity doesn’t just mean design, it means treating your users not simply as users, but as people. Two of the top three highest-rated banks for customer service in the UK are neobanks. This is one of the primary reasons their Net Promoter Score (NPS) remains consistently high and their rate of account openings is growing so fast.

Innovative features

Being user-centric means features aren’t dictated by what’s already been done, but by what people need, inevitably leading to greater innovation. Banks need to explore how they can expand their offering to help users achieve their goals, without customers needing to go elsewhere. Monzo made headlines recently when it allowed users to claim their salary a day early if they got it paid into their account by direct deposit – over $1 billion has been claimed through this feature since launch.

There is much US institutions can learn from the practices of the organizations currently eroding the UK incumbent banks’ position. The market is still in its infancy in the US, which makes this a time of huge opportunity. Over the next couple of years, the players who will dominate this market will emerge. It may be an incumbent’s offering like Marcus by Goldman, or a standalone such as Chime. Whoever it is, the UK has laid a clear roadmap to success. Now the race is on.