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The rise of the challenger banks over the past five or so years has been a cause for concern for the banking industry. A bank built for the tech generation, with the opportunity to develop a complete technological infrastructure from scratch for mobile phones and wearables, has forced traditional banks to act quickly to play catch-up. The past few months have seen a wave of app updates from traditional groups, such as instant notifications and more services available on phones, to compete.
However, this year we expect to see challenger banks themselves being increasingly challenged in the market. Whilst there is certainly a lot to learn from financial services which are built for the digital generation, these new offerings can’t afford to ignore the importance of the trust offered by in-person contact. We predicted this back in December as one of the key trends we expected to see in 2018, and recent research from RFi Group seems to indicate itis becoming a reality.
Are we seeing a shift back towards traditional banking?
Falling faith in digital-only
Concerningly for a new breed of banks, the UK’s consumer comfort level with a digital only provider plummeted. Just over half now remain supportive of the concept, down from almost three quarters six months earlier.
The driving force behind this is the conflict of technology and services. A terrible digital experience will push customers away, but so will a limited range of options and a lack of person to person engagement. Digital only banks established themselves with sound technology but usually limited services.
As challenger banks recognise the need to expand the range of services they offer, they are increasingly competing with bigger banks. Their customers don’t just expect a full range of services but are also used to in person contact, for example to pay in cash at Christmas or discussing mortgages with an in-branch advisor. This is something which a digital only banking app will always struggle to replicate, despite in-app chat services.
From a security perspective challenger banks, which are often seen as technology companies first, may have a disadvantage in how their security is perceived. As the RFi Group’s research says, “trust is the gold currency of the traditional banking player”, and trust in how banks do this has increased from 31% globally in H1 to 42% in H2.
Traditional challenges
Finding a middle ground is not an impossible challenge, however traditional banks also have their own problems to overcome. Infrastructure costs, combined with falling usage, is leading to banks consolidating their ATM and bank branch networks, damaging the very trust and contact which could provide the winning edge against newer challengers.
While challenger banks have a technological clean slate, it is not beyond banks to be able to upgrade and develop their infrastructure in order to outpace and outperform competitors. This is vital when delivering a better technology experience. One of the most common technology trends in this area is the cloud, which is being successfully adopted in ATMs for example, allowing banks to offer more services through them and increase revenue opportunities while also lowering the total cost of ownership. But not all banks are using the technology as effectively as they could be, if at all.
The reasons for this are complex: rigid market structures and legacy systems prevent the quick adoption and implementation of technology, there are concerns about placing customer data into the cloud, and within the business there may be a separation of those responsible for ATMs from the digital team. Combined, these factors have limited the further development of the ATM for several decades, and banks are only now starting to address the problem.
Finding the middle ground
2018 is the year that challenger banks will be challenged, but traditional banks shouldn’t rest easy after bringing a few new features to their apps. Both types of banks must find a balance of services, cost, accessibility, and in-person contact which most benefits their customer base. There must be a fusion between digital efficiency and physical trust in order to offer a complete experience to the customer.
