Sold down the river
Losing sight of who your customer is will cost you dearly in financial services.
Issue № 95 | London, Sunday 28 April 2024
Read on to learn why:
① Customers demand complete trust of their bank.
② Trust is earned with simplicity, transparency and great customer service.
③ The tension between competition and compliance is systemic.
④ Tokenisation tackles the core inefficiencies of cross-border payments.
⑤ The race to usurp TikTok is, quite frankly, getting a little desperate.
⑥ The quasi-merger is here to stay but not all of them will prove successful.
⑦ IMTW is a labour of love.
What's new
Reputationally-challenged wannabe bank Revolut did itself no favours this week.
In short:
“Revolut is exploring plans to monetise customer data through sharing it with advertising partners, as the fintech seeks new sources of revenue while its application for a UK banking licence remains in limbo.”
“‘We could become a media [business] . . . a place where you have an audience and data about the audience and you monetise this,’ Revolut’s head of growth Antoine Le Nel told the Financial Times in an interview. The London-headquartered group could in the near future derive a ‘proper chunk’ of its total revenue from targeted advertising, he said. ‘We know how [users] navigate inside the app, we know some of their interests that they have because they’ve clicked on this and that,’ the fintech executive added.”
“One person familiar with the business plan said the company had set an internal target for revenue derived from advertising of about £300mn by 2026. Revolut declined to comment on the target. Its entire business generated revenues of £923mn in 2022. Revolut’s push to generate a bigger slice of earnings from advertising comes as investor hype surrounding the fintech sector has waned.”
Why it matters
Having secured a $33bn valuation in a funding round in 2021, Revolut now needs to convince investors it can deliver sustainable growth. I’d suggest that the way to do that is by becoming a large-scale lender: attracting more users and persuading them to use Revolut as their primary bank account. So far, it’s failed to do so because 1) it has yet to secure a banking licence and 2) its users clearly don’t trust it to be their primary banking provider.
With that context, this news matters because it’s hard to think of a more misguided strategic move from Revolut. Sure, a few hundred million of revenue isn’t to be sniffed at - but at what cost? Of course advertisers will be interested. Targeting an audience based on their spending sounds idyllic to most marketers. But by monetising its users’ data to sell their eyeballs to advertisers, Revolut destroys the trust it has with them. And, I suspect, the regulator won’t look kindly on this new diversification either.
① You’ll tell me that the likes of Amazon have created very successful ancillary revenue streams with advertising, without harming their core business. But their core business wasn’t as intimate, important, and regulated as retail banking. Most people demand a level of trust of their bank that’s a magnitude higher than any other brand they do business with.
What to do about it
Take action
The obvious lesson here is never forget who your customer is. By ‘selling’ its customers to advertisers, Revolut clearly has. Contrast that with my favourite neobank, Monzo, who launched new pricing plans this week. I’m a Monzo customer, I use it as my primary current account. And I do that because their product, their marketing, all of their communications have always made me feel like I - the customer - matter most to them. No surprise then that the execution of the pricing plans roll-out is the antithesis of Revolut’s approach; it’s a master class in enchanting your customer.
② Ewan MacLeod created a thorough walkthrough that you should really have a closer look at. In short, Monzo earns the trust of its customers by:
Making the complex simple: Their communications go to the trouble of turning what would otherwise have been detailed terms and conditions into easy-to-understand bullet points.
Offering complete transparency: They present their customers with a clear description not just of what they’ll gain by upgrading but what they’ll lose.
Cosseting their customers: At every step, the customer is talked through the implications of their choices, offered additional information, and presented with clear summaries - creating a feeling of being in safe hands. Oh, and they’re buying me a sausage roll every week too.
Unlike a Revolut user, a Monzo customer trusts their bank and is never in any doubt that they are what matter most to it. This week, be more Monzo.
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Top stories
The other articles that are worthy of your time.
FINANCE
Peers call on regulator to halt ‘name and shame’ plans as City fury grows
③ The tension between competition and compliance is systemic.
“An influential group of peers has called on the Financial Conduct Authority to halt plans to ‘name and shame’ the firms it is investigating as fury over the proposals grows in the City. In a letter to the FCA boss Nikhil Rathi, the House of Lords Financial Services Regulation Committee said the plans ‘risk the overall integrity of the market’ and could lead to ‘unwarranted impact on blameless firms’.”
“The plans have raised eyebrows as 65 per cent of the FCA’s current investigations are closed with no action taken. While the plans were designed as a deterrent, fears have grown that companies risk facing huge reputational damage despite no wrongdoing having taken place.”
“Top trade bodies UK Finance and The CityUK are also understood to have hardened their stance against the measures after gauging the sentiment of their members at recent meetings. In a statement to City A.M. over the weekend, CityUK chief Miles Celic said the industry is ‘opposed to the FCA’s proposal to name and shame’ firms. ‘This proposal contradicts the fundamental legal principle of innocent until proven guilty and also risks undermining trust and confidence in the wider industry and the UK’s competitiveness,’ Celic added.”
TECHNOLOGY
Central banks embark on tokenisation project
④ Tokenisation tackles the core inefficiencies of cross-border payments - and threatens Swift.
“The Bank for International Settlements together with seven central banks is embarking on a major project to explore tokenisation of cross-border payments. The central banks - Bank of France, Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England and the Federal Reserve Bank of New York - plan to work on the project in partnership with a large group of private financial firms convened by the Institute of International Finance.”
“The project builds on the unified ledger concept proposed by the BIS and will investigate how tokenised commercial bank deposits can be integrated with tokenised wholesale central bank money in a public-private programmable core financial platform. The initiative will use smart contracts to enable new ways of settlement and unlock types of transactions that are not viable or practical today.
“The BIS says the aim of the project is to overcome several structural inefficiencies in how payments happen today, especially across borders, combatting different legal, regulatory and technical requirements, operating hours and time zones. If successful, the project has the potential to displace banking co-operative Swift, by linking together central banks for cross-border payments with zero settlement risk.”
MEDIA & MARKETING
Bob Diamond sets sights on rivalling TikTok with social media start-up
⑤ The race to usurp TikTok is getting a little desperate.
“Former Barclays boss Bob Diamond is looking to take on TikTok as chair of a social media start-up that claims to be worth more than $3bn, despite revenue of only $36mn and less than $1mn in cash on hand last year. The new direction for the financier comes after video platform Triller agreed an all-share takeover by AGBA, a small US-listed Hong Kong-based financial services platform with a controversial past. Diamond, who has chaired AGBA since September, will serve in the same capacity at the combined entity.”
“Triller is a controversial — and minuscule — player in the music industry. The start-up in 2019 announced investments from a range of famous artists including Snoop Dogg, The Weeknd, Lil Wayne and Kendrick Lamar. Then chief executive Mike Lu made the bold claim that this ‘marks perhaps the most significant shift in music since the creation of streaming’. The company has tried to capitalise on the backlash against TikTok over its Chinese ownership, with Lu’s replacement Mahi de Silva in 2022 calling for every American to delete TikTok. Triller is now led by Bobby Sarnevesht.”
“Wing-Fai-Ng, group president of lossmaking AGBA who will be chief executive of the combined group, told the Financial Times he had known Diamond for more than a decade and considered him ‘like family’. The Triller deal was announced days before President Joe Biden signed into law an initiative that will ban dominant video app TikTok from US app stores unless its Chinese parent divests the business. ‘We believe there is a massive opportunity in social media, in video sharing coming out in the United States in the next year or so and we believe that Triller is by far and away the best positioned company to take advantage of that,’ Ng, a former investment banker, told the FT.”
WILDCARD
How to build a global business empire in the 21st century
⑥ The quasi-merger is here to stay but not all of them will prove successful.
“While corporate takeovers stalled in 2023, a few mega-mergers notwithstanding, the number of joint ventures and partnerships jumped by 40%. They are especially popular in areas of rapid technological change and in places given to protectionism, which these days afflicts rich and poor countries alike. With barriers to commerce rising, high interest rates continuing to bite and regulators bridling at takeovers, such liaisons are becoming the go-to way to enlarge a business empire. Call it the age of the quasi-merger.”
“Quasi-mergers are not new. Firms have long teamed up to manage project costs, new technologies and manufacturing-obsessed governments. [...] Today’s more complicated world is leading to more complicated arrangements. […] Digital titans are building intricate webs of co-operation. In contrast to those between lumbering carmakers, whose rationale is to spread costs, the AI deals have more to do with antitrust cops’ conviction that big tech is already too big.”
“The success of the quasi-merger wave is hard to predict. Though alliances pass the desks of regulators more easily than takeovers, they can still come unstuck. […] Cross-border deals, in particular, tread a narrow path. Teaming up in emerging economies has always needed careful management, lest politically connected locals turn on foreign partners or an entire jurisdiction becomes uninvestable. The turn away from free markets in the West has, to some extent, globalised this political uncertainty. The flexibility inherent in a partnership or JV but absent from a full-on takeover could make such structures more politically acceptable.”
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Off cuts
The stories that almost made this week’s newsletter.
FINANCE
🌊 Ban on non-compete agreements sends shockwave across Wall Street
🛗 Trading helps lift Deutsche Bank to highest quarterly profit in 11 years
🔻 Barclays profit falls as mortgage lending and investment bank squeezed
✂️ BNP Paribas is said to plan 50 job cuts across its UK unit
👋 Goldman Sachs: offloads Marcus robo-advisor customers and moves senior banker to Paris in post-Brexit revamp
TECHNOLOGY
🤖 FCA lays out approach to AI regulation
🇺🇸 How Bank of America approaches innovation
⛓️ Tokeny strengthens multi-chain capabilities with Telos integration
🏪 StanChart launches “Open Banking Marketplace”
🦾 'Get started now': Putting AI to work in financial advice firms
MEDIA & MARKETING
🥇 Google makes it official: Content marketing is now the #1 ranking factor
💷 Social media drives UK online ad spend to highest level ever
🤝 Lead generation and marketing automation: Make them work well together!
👮🏻♂️ FCA issues almost 600 alerts in initial months of tighter financial advert rules
🔛 What is employee activation?
The last word
⑦ Vered Zimmerman, Founder of Fintext, on producing content marketing:
“Anyone can launch a blog, and put their heart and soul into the first few posts. What's hard is sustaining the effort over time. […] You'd be surprised how often companies — in any sector, not just investments — don't realise how costly it is to just keep writing.”
Don’t settle for marketing.
Strive for InMarketing.
Wishing you a productive week,
P.S. If you haven’t seen Entangled Pasts at the RA yet, today is your last chance.