In today’s age of technological disruption and a pandemic to deal with, the speed of digital transformation is becoming ever-more apparent for the consumer as they navigate working, shopping and entertainment services directly from their home environment. To avail of these, digital devices are needed - to communicate with friends, families, and colleagues. This is not new for today’s generations; they have not known a life without these devices. These devices and the applications stored on them are built to utilise the unique experiences of the user. For financial services, they change how the customer interacts with their bank and how banks are delivering their services to their customers. This is how challenger banks operate.
The disrupter or challenger banks, as they are called, focus on simplicity. They offer low-cost financial solutions to their client-base, which works seamlessly from onboarding to customer support. They noted that traditional banks were not agile due to archaic processes’, legacy IT infrastructure, and the cost of operating bricks and mortar premises. So, by streamlining digital strategies, using artificial intelligence and machine learning, and no physical premises, they were able to gain great strides past the traditional and well-established banks and, at the same time, meet the needs of today’s population.
Millennials are digitally aware. They want their bank to help make their lives easier. They want help in enabling them to manage their money more proactively. They like to have the ability to contact their bank at any time that suits them. They are also less interested in visiting a branch location. All these demands have been alien to traditional banks. For example, Starling Bank, a UK-based disruptor bank that runs all banking services through its mobile apps, saw a net customer gain of over 15 thousand customers in the first quarter of 2020. It has the most successful ratio of any UK bank; for each customer lost, it gained nine more.
The disrupters have made the banks nervous. According to a report by PWC, it is estimated that 88% of banks are still very concerned about the continued loss of customers to these innovators. But whilst they have become nervous, they have brought to their attention their frailties and customer demands and are now starting to embrace the transformation of their services to a more digital approach. They also have many advantages over the disrupters, customer loyalty, huge customer-bases, and big pots of money to call upon. If the banks can utilise all this data, they have grown over the years, using data-driven insights to recommend products and services to their customers, offer 24/7 customer service and provide advice to their clients across the whole customer journey. Then the big banks could turn a corner.
The disrupter needs to keep innovating and onboarding customers to compete with the big banks and profit. They need more customers, and they need to retain, and they do this by innovating, deploying new services, and keeping transaction costs low. Being agile and proactive could keep them ahead of the sluggish traditional banks.
To conclude and to answer our original question, the answer is yes. The traditional banks are losing their customers to the challenger banks. A recent study shows that UK banks, Barclays, Lloyds Banking Group, and HSBC have lost around a 30% share. Considering their significant market share and the signs are there, that’s a considerable number that will continue into 2021 and beyond.
Complete list of challenger banks - https://www.finder.com/uk/digital-banking/challenger-banks-list