Industry30th April 2024

From bank accounts to ISAs: what comes next for NBFIs

NBF Is blog
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The last five years has seen growth in retail investing, driven by a combination of historic low interest rates and new low-cost digital services and platforms. However, as market conditions have changed, incumbent Non-Bank Financial Institutions (NBFIs) and newer firms are facing significant challenges to maintain and grow their assets under management (AuM).

So, how can they respond? The answer may lie in going back to some financial services basics, as I’ll explain below.

Emergence of new competitors

New competitors have come in numerous guises. First came automated investment products that built portfolios managed by algorithms for individuals with smaller sums than traditional investment managers would take on. This was followed by a new breed of fintech providers, offering anyone with a smartphone the ability to buy and sell shares, and fractions of shares, through intuitive app-based services.

A plethora of new digital investment managers launched with a wide variety of business models and investing strategies, including copying other investors’ trades, thematic investing and environmental, social and governance (ESG) strategies.

From 2020 and into 2021 these new entrants seemed unstoppable. Account sign ups surged as new investors looked to capitalise on market volatility and found themselves with more disposable income due to enforced reductions in travel, social and even childcare related spending. Existing investors were also attracted by the lower fees and the intuitive, app-based experience.

Robinhood doubled the number of funded accounts on its platform from 9.8m to 22.5m between June 2020 and June 2021. Today it has in $102.6bn in AuM and recently launched in the UK, where it joins a highly competitive market. This includes Freetrade that has more than 1.5 million registered users and holds more than £1.6bn AuM, Trading212 with 2.5m customers and £3.5bn in AuM, as well as Lightyear, Shares, Wealthyhood and others.

Incumbents have responded with their own automated investment products and reduced or removed fees to avoid losing customers to the newcomers. Some have built apps or launched standalone digital propositions, with varying degrees of success.

Market evolution requires a broader approach

Now the boom years of Wall Street Bets and GameStop have abated, these new investing services are facing their first real test. Robinhood, after a period of significant growth made a series of layoffs in 2022 to counter softening demand for its services. The ongoing cost of living issues have also meant some more cautious consumers are no longer willing or able to invest as much as they did. Newer entrants that were riding the wave of memestock day traders and the incumbents that are seeing greater competition for AuM are facing the same challenge: How do they keep customers and grow deposits in the medium to long term?

However, with challenges come opportunities and the potential for reinvention with services that drive brand loyalty, deliver higher deposits and the ability to grow and evolve as their customers’ needs change.

Getting closer to the customer with bank accounts

It might, at first, seem counterintuitive to suggest a firm look to be competitive by moving to an even more crowded sector of the market. But it misses a critical point. A bank account is highly transactional and offers firms numerous customer touchpoints.

They hold a wealth of customer information, from how much they earn, what they buy and when and regular outgoings such as direct debits for mortgage and utilities. Through open banking-based account information services (AIS) a firm can now derive a rich set of information, transforming transactions into actionable insight.

With that a firm can deliver high-impact digital engagement features that drive deposits and, as we’ll discuss shortly, savings. Crucially, this insight can be used to deliver tailored advice and support at the most appropriate point in time to help customers manage their money more confidently and support improved financial wellbeing.

Some NBFIs may be uncomfortable with the idea of building a customer base through a product that can seem far removed from their trading and investing roots. But if incumbents are looking to build new digital experiences for their core business, an app-based bank account is highly complementary and should be given serious consideration.

For newer entrants who are seeing neobanks add trading and wealth management capabilities, often in partnership with existing platforms, they should consider doing the reverse: adding a bank account to give customers a single view of their finances.

Delivering better returns with savings accounts

The ideal scenario is to be a proactive partner in your customer’s financial life. That can start with a bank account.

But seeing a customer with funds sitting in their account at a lower interest rate, provides an opportunity to, as a benefit of also knowing their spending patterns, to suggest they could make their money work harder. That could, for example, take the form of a higher-interest savings account.

While many platforms have created a slick investing experience, they lack the optionality to enable customers to deposit and hold funds in other products, potentially missing out of millions of users and billions in deposits. These options need to be intuitive, enabling customers to move funds into separate savings accounts. It could also be a mixture of accounts, some with additional tax benefits, such as Individual Savings Accounts (ISAs).

If the goal is to grow a deposit base and the AuM, providing this within a single, coherent service is a powerful route to empowering the investor of the future and improve deposit stickiness. From there, firms can evolve the relationship to actively encourage investment across a variety of assets.

How ClearBank can help

Through bank accounts, firms can help a much broader set of customers to feel in control by enabling them to invest where they can but also bank and build savings in one place. But delivering on that strategy and vision can be complex.

As the expectation of a truly digital experience continues to rise, firms will need to be radically leaner than they are today and set a rising bar for operational excellence and good customer outcomes. They will also need to move much faster than they have been used to.

That’s where a trusted partner like ClearBank comes in. We deliver modern and market-leading embedded banking infrastructure: from payment solutions to a range of accounts including current accounts and savings accounts.

Firms like Wealthify, part of Aviva, are using ClearBank to launch new savings products and enabling them to pass on competitive rates to their customers. Chip has offered an instant access savings account, powered by ClearBank, for several years and recently expanded our partnership to launch a flexible Cash ISA.

A benefit of delivering accounts powered by ClearBank embedded banking is that eligible funds attract Financial Service Compensation Scheme* protection. They also offer the ability to earn interest proportionately, with ClearBank managing all the payments, while clients retain control of interest rates offered to customers.

This model enables our clients to focus on the customer experience while ClearBank takes care of the technical infrastructure.

Do these challenges resonate with your business? To find out how ClearBank can support your business to deliver bank accounts, instant access savings accounts and Cash ISAs, get in touch.

*The Financial Services Compensation Scheme (FSCS) is an independent body set up by Parliament under the Financial Services and Markets Act 2000 (FSMA). Should a bank, building society or credit union fail, the FSCS protects eligible deposits up to the deposit protection limit, currently £85,000 for bank deposits.

Sukhy Atwal is Head of Non-Bank Financial Institutions (NBFIs) at ClearBank, where he leads the team that oversees our wealth and asset management, trading and investment clients. Prior to joining ClearBank in 2020, Sukhy was NBFI Head at JPMorgan and has over 25 years of experience in Corporate and Transaction Banking covering International Corporate, FIG and NBFI client segments.

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