Contrary to widespread opinion, challenger banks are not new to the financial services market. After the financial crisis, a wave of upstart banks emerged to shake-up the status quo. What’s new is their success in disrupting the market. About 9% of the UK population (4.5 million) have an account with a digital-only bank, and 16% (8.5 million) plan to open one in the next five years (Finder, 2018).

This new wave of alternative banks has been able to offer digital-only services that are simple and quick, at a time when the online and mobile capabilities of many traditional banks leave much to be desired. It comes as no surprise that digital banks like Monzo and Starling therefore lead the way in customer satisfaction ratings among financial service providers in the UK. A seamless and personalised user experience, even evidenced through something as simple as app log-in times (which are twice as quick compared to traditional banks), goes a long way to satisfying customer needs. Traditional banks therefore need to close the gap when it comes to app functionality. 

The features within financial services apps play a crucial role when considering functionality. On average, UK challenger banks offer 42% more features within their mobile apps than traditional banks (Mobile Banking App Review 2018). Many of these features go beyond the realms of traditional banking. One of the features that presents the starkest contrast between new and traditional banks is their approach to money management. On average, challenger banks offer 9.6 money management features, which means that users have access to comprehensive insights, whilst traditional banks tend to offer just four basic options (Accenture, 2019). Monzo, Monese and Revolut, for example, offer features like budgeting by spending category within their apps. This allows them to track a user’s spending within a particular category and send smart notifications. Apps like Chip and Emma have also started to emerge with the sole purpose of helping users to manage their money – showing the demand for a more hands-on approach.

This suggests a wider trend within financial services. For a long time, everyday banking has existed in the background of people’s lives, but these new features are moving it to the forefront by playing a more active role. So far, questions about the somewhat intrusive nature of these features have not emerged. Instead, they seem to be widely considered as useful in an age where consumers are prepared to exchange sensitive information for convenience. It may also be the case that challenger banks have more of a licence to cross this line than bigger banks, due to their transparency, which has subsequently built trust amongst consumers. In order for traditional banks to step into this territory, they need to build trust in a post-financial crisis landscape.

And when it comes to trust, traditional banks have an advantage over challenger banks in the form of security. Despite the aforementioned advantages, experts have warned that challenger banks may be more susceptible to security threats. Challenger banks have only a fraction of the budget compared to more traditional banks when it comes to ensuring the security and privacy of their customers’ data, and as they take on an increasing number of customers, this threat is only going to become greater. Leveraging this perceived reliability and trust when it comes to security is therefore vital for traditional banks. With the average data breach to a UK organisation costing roughly £2.48m, traditional banks cannot afford to be complacent, and need to continually invest in robust security measures in order to gain from this advantage.

We work with a number of financial service providers covering a wide variety of issues, including helping Open Banking to identify best practice and journey optimisation for financial services apps. This particular piece of research has been used to guide best practice guidelines which have been shared with the UK banking sector.  If you want to find out more about our financial research capabilities please get in touch!