The Future is Bright for Challenger Banks


Fintech, Retail Banking

Chris O'Brien

Associate Director

IFF Research

Challenger Banks

On October 17th IFF Research’s Associate Director, Chris O’Brien, was invited to present at the Financial Services Forum’s morning event, focussed on providing insight into consumer engagement with the new challenger banking brands. As well as sharing exclusive findings from IFF’s Fintech Beacon community of digital bank users, other presenters were able to provide insights from a large-scale quantitative exploration of the wider banking market (Andy Dexter, Senior Adviser, MESH Experience), as well as the internal perspective from one of the top challenger banking brands (Lisa Wood, CMO, Atom Bank).

Prospects for future growth

All three presentations painted a positive picture for the prospects of the challenger banking brands. While at an overall level these brands hold a relatively small share of the banking market, expectations are that the sector is likely to grow a great deal over the next few years. At the moment awareness of these new brands remains low, although this has been growing slowly over the last two years. In keeping with this, consideration for using these brands has been growing. Of particular interest was that new customers of the challenger banks are not coming from one demographic or attitudinal segment of the population, but instead appealed to a wide range of different customer types. As the challenger brands become more established and able to communicate about their stability as a business, all three panellists felt they are more likely to attract a greater share of the market over the next few years.

Higher expectations for customer experience and product value

Those that are currently customers of the challenger banking brands are vocal promoters of both the level of service they are receiving and the quality and value of the products they are being offered. These customers believe that the new challengers are innovating and developing new products and services that really meet their needs, addressing common pain-points that customer experience when interacting with financial companies. In one example from Atom Bank, Lisa Wood flagged that the quickest mortgage approval that they have managed so far only took 15 seconds from application to approval. The challenger brands are currently reliant on promotion by word of mouth, and of their customers being vocal promoters of their services. As things currently stand this is what is happening, and the current levels of service being provided are raising expectations of what banks should be providing to their customers.

The target is to disrupt the market

During the Q&A section of the event a member of the audience raised the question of how the challenger brands are differentiating from each other in a crowded market. The response from the panel was that at this stage in the progress of these new brands, the focus is not on competing with each other, but rather on disrupting the market for the more established banks and showing consumers that they do not have to put up with poor service and products. If the challenger brands do continue to gain market share due we should expect the established banks to come under competing pressure to improve their offer. In light of new the Open Banking legislation we can expect many new niche services to spring up to address customer pain-points, and the established banks need to be fast followers to develop their own version of these services unless they want to be left behind or increasingly be seen providing basic lower-value services for customers.

The future is bright

The panel all saw the future as bright for the new challenger brands, as they increase their focus on providing an exceptional digital and customer experience. If they are able to continue to innovate and provide customers with the services they need, and continue to position themselves as a trusted financial partner, we would expect these new challengers to gain further market share over the next few years.

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