‘Digital challengers’ are looking to extend their reach at the expense of traditional high street banks, according to leading banking industry experts.
GlobalData’s Retail Banker International asked leading industry figures for their views on the coming year, and digital banking was high on the agenda.
Omnio CEO Adrian Cannon told GlobalData: “As retail bank branches have continued to close, Amazon, Apple, Uber Money and others, have understood that by being hyper-relevant at multiple moments in their customer’s everyday lives that they can reinforce their brand value and become an embedded and trusted partner.
“These [digital challengers] are set to increasingly extend their product set into the financial services sector, challenging the big banks to raise their game quickly.”
Ian Bradbury, CTO Financial Services, Fujitsu told GlobalData: “Many challenger banks are now in a position where they are serious competitors to traditional banks, largely thanks to the huge investment in the fintech sector over the past year. This will see them move even further into the mainstream in 2020.
“As a result, 2020 may be the year when a traditional bank takes the leap and acquires a challenger bank to take advantage of the brand loyalty, as well as the scalable cloud-native systems owned by those banks.”
GlobalData banking editor Douglas Blakey, says: “The challengers versus incumbents’ debate is a fascinating one that will hot up in 2020. Digital-only challenger banks are on the rise. Six challengers are already worth more than $1bn (Brazil’s Nubank $10.4bn, US’ Chime $5.8bn, Germany’s N26 $3.5bn and UK duo Monzo and Revolut at $2.5bn and $1.7bn respectively.”
However, Blakey warned: “For the challengers, the aim is to do more than just raise capital, offer great looking apps and grow customer numbers. They need to expand their product ranges into more profitable sectors of the market. At the same time, they need to grow the number of customers signing up to use their premium subscription products. “Switch rates for primary banking relationships remain stubbornly low. Despite the hype, UK challengers such as Monzo, Starling, Tandem, Revolut and N26 are not yet eating the incumbent banks’ lunch when it comes to primary banking relationships. Nor are the majority of the challengers remotely close to break-even yet alone profitability.”
Craig Peasley, director of marketing at Adobe, however, believes that data shows that there’s still room to delight customers with offerings that combine the face-to-face service that’s still popular and digital offerings. “There’s a shift that’s occurring in banking right now, and it’s driven by the fact that younger consumers are coming of age and getting their own bank accounts,” Peasley added.
While digital and mobile bank self-service offerings are most popular, new research from Adobe revealed that physical bank branches remain an essential touchpoint. After surveying over 1,000 people across generations, the Adobe Consumer Banking Insights study found that 75% of consumers still believe that physical bank branches matter and 70% have visited a physical branch at least once in the past month.
More than half of the respondents said that most of their banking is conducted online, but even with convenience at their fingertips, consumers also said more could be done:
- 62% said their banks’ digital offerings are just average compared with the rest of their digital lives
- More than half (57%) of all respondents said they have never digitally signed a document with their banks, while 41% would like their banks to offer this ability
- Most (59%) said they would not do business with banks that didn’t offer digital or mobile services
The study also found that Millennials and Generation Z, in particular, preferred banking via mobile apps and were more likely to state they would not bank with a financial institution that had limited or no online and mobile services.
- 44% of Millennial and Gen Z customers would even like to start and finish applications to open an account without ever walking into a bank
- Despite these generational differences, security and privacy remain the No. 1 factor for all age groups when choosing a bank:
o The majority (76%) cited security and privacy as key considerations when digitally enrolling for a banking service
o 50% said they worry about the safety of their finances with online-only banks
With these insights, banks are presented with the opportunities to rise above digital challenges and thrive in the future.