Revolut, Monzo, Starling, and Tandem. You must have heard of these new age “Challenger Banks”. They have combined banking and fintech, which took the banking sector to a whole new level.
They are widely preferred by many customers around the world, and a new challenger bank is entering the financial industry every day. Now, traditional financial services are looking for ways to keep up with them.
But how have challenger banks caught a momentum that allows them to accomplish such a success? Yes, the social distancing required during COVID-19 made digital-only banks more attractive, but what else is there? After all, they serve millions of customers.
There are many factors that allow challenger banks to actually challenge traditional banking. Read our article to discover them.
Customers Prefer Challenger Banks Because…
We are living in a time when customers are presented with many options. Therefore, the banking sector has institutions that leverage technology to get a competitive advantage. Here are some of the main factors that allow challenger banks to stir the game.
From a mobile-first approach to AI and chatbots to adapting many aspects of FinTech, there are crucial factors that every bank must apply to stay competitive in the financial market.
As the fundamentals of challenger banks are based on technology and the developments that come with it, traditional financial services that continue to pursue their main banking services through branches and more human-based processes can be left behind.
According to Oliver Wyman 2019 report, retail banking customers per FTE (full-time equivalent) was <1,000 for traditional financial services and >2,500 for challenger banks, resulting in a more efficient and productive banking system.
Deploying FinTech and technology will also attract customers for various reasons. For example:
- Mobile banking allows convenience for customers
- AI and chatbots serve as 24/7 customer services, which will improve UX and performance
- Big data analytics allows more accurate services.
Keep in mind that the potential customer profile of financial industries are now millenials who are impatient and inspire change. As they represent technology and the changes that come with it, integrating FinTech solutions is one of the foremost reasons for how challenger banks are upping their game.
Read our article to learn more about FinTechs that will shape the banking industry.
Knowledge is power – and data is knowledge about customers. As the importance of data is undeniable, it is a fact that not many of the traditional banks are utilizing data the way they should.
You can receive customer data from their location, banking activities, and even their social media accounts. These valuable insights will:
- Ease managing CRM (customer relationship management)
- Raise brand awareness through promoting products and services
- Create brand advocates and loyalty through customized products and services.
These advantages are some of the reasons why challenger banks are now more preferable among banking customers.
One of the most important leverages challenger banks have is that they are cost-efficient. According to Oliver Wyman 2019 report, the average cost to acquire new, current account customers was $150 for traditional financial services and only $30 for challenger banks.
Challenger banks also deploy automated services that require less labor, thus they have lower employee fees. All of their features, products and services depend on technology with no need for any branches or fix locations that can cost millions of dollars each year.
As cost-efficiency allows challenger banks to serve customers with lower fees and higher interests, which is one of the main focus points that customers consider while preferring their banks, challenger banks also leverage these advantages in investing in innovation, upgrades, and improvements.
Innovation is a must that almost every industry must invest in in order to stay relevant and serve their best. In the banking structure, due to their technology-based structure, challenger banks are always the fastest to innovate.
As innovations can be based on customer feedback, which is the most important type of innovation a bank can inherit, according to the Oliver Wyman report, it takes traditional financial services 3-6 months to launch a new feature, while it takes 2 weeks for challenger banks to do the same.
As you can drive innovation based on customer feedback, it helps to:
- Produce banking products and services that are suitable for changing customer needs
- Create brand loyalty as you value customer feedback
- Expand your reach with new developments.
Challenger banks are growth-driven. Monzo’s 2020 annual report states a nearly %250 increase in its customer portfolio from 1.6 million to 3.9 million in only a year. As they invest in innovation and deploy FinTech, they also expand on a global scale without the need for any physical in-house operations.
The mobility allows banks to operate worldwide without requiring any physical human contact. This not only expands challenger banks’ reach, but it also allows it on a lower budget, which they use to drive growth within their services.
Building a financial institution’s agility is crucial to the success of a tough bank. The COVID-19 pandemic has shown us that being agile is a key factor in adapting to unpredictable times and thriving through it. The digital banks were already one step ahead when it came to social distancing and a remote working environment. However,
utilizing data, planning ahead, and using resources and technology to their best advantage are the things that challenger banks are applying to stay agile and flexible.
Employees Prefer Challenger Banks Because…
Employees are as important as customers in the banking sector as it is in any other. Although challenger banks recruit fewer employees because of their technology-based structure, it is important to recognize their work environment as happy employees mean happy customers, and customers now also consider employers and how they treat their employees while making their preferences.
The Oliver Wyman report states that only %25 of traditional financial institutes’ employees rate their company as with 5 stars, while the number increases to %68 within challenger banks. You should also keep in mind that the young generation are the potential employees and they consider being employed in a traditional bank a setback whereas being recruited in a challenger bank is a career-building and promising step for them.
First of all, understanding your customers – and employees – which are shifting to a younger generation with different needs and expectations than the prior ones, is one of the key factors of attracting them. They value speed, convenience, and technology, and challenger banks offer them all. With technology giants like Google, Apple, Amazon, and even Facebook that are using fintech to serve tech-savvy customers, traditional financial services are really up for a challenge.
Foreks Digital offers you digital banking solutions that will carry your bank into the future and raise the challenge. Contact us to consult our experts.