In an open letter to the founders of Pennyworth, Leon Gauhman, chief strategy officer at Elsewhen, explains why superb customer experience, best in class product innovation and disruptive fintech instincts will be critical if the new challenger bank is to succeed.

Dear Jeremy Takle and Ben Harvey,

Congratulations, you’ve recently taken a giant leap of faith – moving from the familiar echelons of Barclays to launch your own self-styled neobank disruptor: Pennyworth. And in true pioneer spirit you have identified a problem that needs solving; your premise that “banking is broken” and that traditional firms “exploit busy people” could well resonate with your target consumers, as will your mission is to fix the system by making it easier for people with complex needs to achieve their financial goals.

It takes guts to launch anything in the current Covid climate let alone a neobank. After all, this is the year when RBS’s Bó and N26’s UK operations have collapsed, market leaders Monzo and Revolut have buckled under severe financial pressure, and 70% of small fintechs are reported to be running out of cash. In such an uncertain climate, it requires real nerve to strike out and try something new. 

If, as you say, first-wave fintechs are “failing to break the inertia” of the UK banking scene, this is your chance to do something radically different. To succeed, you’re going to need to work harder at differentiating your product from well-established and well-resourced rivals. Here are three ways to do just that:

1.Roll out the red carpet 

The definition of who qualifies as a premium customer is still quite rigorous in the traditional banking world; which gives Pennyworth an opening to target those aspiring affluent young professionals who fall outside potentially outdated qualifying brackets with top-of-the-range services and tailored insights. 

Targeting this mass affluent segment is a key optic for raising funds in the short to medium term; but it’s also a very crowded market where the cost of acquiring customers can soon spiral, so it remains to be seen if it is viable long-term. To make your bank different and genuinely desirable, it’s vital to understand what so-called ‘HENRYS’ want from their banking.

You’re going to have to unpick this demographic’s aspirations, values and vision for the future in real detail and determine how it can be translated into the right delightful experiences. You will need the right approach to underlying technology to enable these ambitions; offering personalised and evolving services tailored to your customers’ demands.

Rolling out the red carpet for digital natives means Pennyworth’s user experience will need to match up to the likes of Airbnb and Uber: beautifully crafted interfaces that are easy and instinctive to use. The same standard has held true for neobank pioneers such as Revolut and Monzo. 

For Pennyworth to compete in this market, you need to assess not only how you approach the UI and test the core journeys with customers, but also your overall branding and supporting marketing to ensure that these are fresh, delightful and progressive and that your bank is a place where aspiring affluents, with all their boundary-pushing potential, feel right at home.

My advice would be to use your 2021 Beta Testing round to build on and drill down into the genuine gap in the market, you think you’ve identified, and determine how your customers’ needs, desires and UX expectations can be translated into into a banking proposition that is genuinely different from what else is out there.

2. Create a stand-out, problem-solving product

As well as delighting customers with a slick UI your offer has to be best in class. The brutal truth is that consumers think about life goals not financial products - they won’t care about Pennyworth’s 1.5% savings rate or your 2.9% personal loan. Instead, you have a real opportunity to build a strong relationship with young affluent customers to help them become wealthier and be the brand that improves their relationship with financial services - a genuinely desirable offering in other words. 

For example, the Pennyworth team promises to incorporate Open Banking and financial planning tools in place of current accounts. This move from the traditional suite of FS products is a promising start, but why stop there? Pennyworth could look to follow this thinking of starting with customer needs through to its logical conclusion: fully automated financial guidance, management and even financial advice.

Armed with the deep-rooted understanding of a customer’s goal that the next wave of robo-advisory could unlock, there is scope to offer your customers a segment-of-one experience: real-time recommendations and smarter ways to save money. Leaning into robo-advisory would be a genuinely state of the art way to deliver customer centricity to solve customers’ real-world problems. Now that would really disrupt the status quo.

For inspiration, try looking at some other companies at the leading edge of the proto robo-revolution. Vanguard’s Digital Advisor offers personalised advice to help younger investors manage their finances and save towards retirement. Meanwhile Fidelity’s AMP platform assesses investor risk profiles and suggests pathways towards achieving life goals, such as making home-buying achievable.

3. Ditch legacy thinking in favour of lean and agile

Your startup team at Pennyworth has big ambitions when it comes to disrupting the ‘broken’ banking market. In which case, legacy thinking has no place here. Take the full banking licence you applied for in March 2020. While I don’t doubt there will be a detailed strategy behind that decision, it may reduce your speed to market and could potentially stymy your ability to launch innovative services. Simply put, decisions of that scale, with so many potential unseen consequences should ideally be considered through the lens of customer centricity - not made before you’ve begun user testing.

The most successful fintech pioneers across Europe have taken advantage of simplified licences, with serious players like Klarna looking to become licensed only when absolutely necessary. The Agile principle of starting narrow, and scaling up when customer-market fit is achieved, lines up well with the ecosystem of BaaS providers, regulated partner banks and limited e-money licenses. 

My instinct is that Pennyworth would be better pursuing a more iterative path; particularly when it comes to taking advantage of integrating third-party technology. Decisions around buy vs. build should not be taken lightly. That way you can launch lean and react nimbly, using a minimum viable product as your gauging point. 

It’s worth thinking about talent recruitment here, too. Ask yourself honestly, do you have the technical expertise needed to drive the kind of high-growth disrupter that Pennyworth aims to be? Major banks are full of the best and brightest, but these talents often lack the experience of having complete oversight of building game-changing tech ventures, so you will need to consider where the talent gaps in your team may be – and how you plan on filling them. This is especially pertinent given the ongoing and urgent shortage of software engineering and data science talent in fintech. 

Despite all the challenges – this is an intriguing and exhilarating time to be diving into fintech. Pennyworth stands every chance of resonating in a febrile sector brimming with fresh new ideas, if you can deliver something genuinely next gen. You just need to be open-minded enough to adapt and learn, keeping the customer as the hero at the core of all that you do. Throw out the rulebook and get set to embrace everything that you don’t know yet – therein lies the route ahead.