A survey of UK consumers by digital banking solutions provider CREALOGIX has uncovered trends in the adoption of mobile-first challenger banks.
There’s a quiet revolution happening in banking. A survey of 2,000 UK consumers commissioned by CREALOGIX has found 1 in 4 under 37s have confirmed they are using digital-only challenger banks and 14 per cent of UK bank customers across all age groups have at least one mobile-only digital banking provider. Up to a third of under 37s have two or more accounts with challenger banks.
While the major banks maintain their dominant market share of current accounts at 87%, the digital-only banks are gaining ground amid high levels of activity in new account opening. 44% of survey respondents have opened at least one new bank account in the last 5 years, increasing to almost 80% of Gen-Zs.
61% of UK bank account customers are thinking about opening an account with a new provider in the next three years. This trend increases with Millennials and Gen Zs, with 75% looking to open a new account in the next three years. Take up of the digital-only challenger banks is three times higher amongst these age groups, demonstrating the extent to which the preferences of the digitally-savvy younger generations are driving the disruption of the market.
The research also suggests newcomers are picking up market share at a rapid pace. German challenger bank N26 feature in the survey results even though they only just launched in the UK in October 2018. 3% of Gen-Zs and 2.5% of Millennials surveyed said they have an N26 account, which would include people who signed up for early access or are still on a waiting list.
The survey of 2,000 consumers by CREALOGIX also revealed the most popular mobile-only digital challenger banks: Starling, Revolut and Monzo – Monzo being the most popular for the under 37s. (While Starling Bank and Monzo are licenced banks in the UK, Revolut currently operates via an e-money licence in the UK and uses passporting to distribute its offering across other European Union markets.)
Preferences changed markedly for older respondents, which overallare much less likely to use a challenger bank – only 6% of over-55s said they had an account with one of the leading challenger brands. Those who do have accounts with challengers preferred to use Revolut and Atom Bank.
After the financial crisis of 2008, market share of the major high street banks concentrated, with over 80% (and at times as much as 90%) of personal current accounts (PCAs) held in only the biggest six firms. Soon after this a YouGov survey (2013) on public trust in banking found that consumer satisfaction was at an all-time low.
The new CREALOGIX research asked UK challenger bank customerswhat they liked best about their bank. Customers repeatedly highlighted ease of use, customer experience, accessibility, flexibility and innovative functionality such as the ability to lock bank cards temporarily, and get mobile notifications and visual summaries about spending activity.
When asked what they liked about using a digital challenger bank, one interviewee said: “This is probably the easiest account I have opened. It’s the only account I have where you can nominate the date your interest is paid and that predicts the amount of interest due for entire term of deposit”.
Another interviewee said: “I love how easy it is to use, how I can freeze my card and alter my settings on the fly and use the card freely abroad. I love my Monzo and Starling accounts because they are easy to use and easily accessible. They help me to budget my money and achieve saving goals.”
Jo Howes, Commercial Director at CREALOGIX UK, said: “The big question of fintech in the UK has been whether the new banks could eat into the highly centralised market share of the top tier banks. We are now seeing figures that clearly show the challenger banks are making rapid progress and gaining market share. The figures and rate of change are enough now to make incumbents sit up and take notice. Our research shows that consumers are attracted to the convenience, usability, and personalisation available from the challengers. To respond to the challenge, established banks need to accelerate their digital transformation and prioritise customer-oriented features and benefits.”
Anton Zdziebczok, Head of Product Strategy at CREALOGIXUK, said: “When they announced a limited beta launch recently, N26 had over 50,000 new UK customers on a waiting list. We are used to seeing lines around the block for new iPhone releases, but this is surprising for a bank account. For the first time, people are actually excited about what’s on offer from a bank. This is no accident because the challengers are using consumer-oriented design and marketing strategies to reimagine what banking can look and feel like. The question for incumbents – including both bank and building societies – is how they can transform their own offerings into something with enough appeal to compete with this influx of innovative competitors.”
The independent study was undertaken by Censuswide between 7-12 November 2018. It interviewed 2,000 18-65 year olds who currently have a bank account.
Media and industry specialists who wish to find out more about digital banking solutions from CREALOGIX can book a consultation via their website at: https://crealogix.com/uk/products/crealogix-digital-banking-hub/
WHY DIGITAL TRANSFORMATION IS CRUCIAL FOR BANKS
David Murphy, Managing Partner, Financial Services EMEA & APAC at digital consultancy Publicis Sapient
Over the past five years, disruptor banks such as Monzo, Revolut and Starling Bank have upended the idea of a bank and have challenged the longstanding dominance of traditional players.
Through a digital-only approach, challenger banks have grown rapidly by exploiting poor customer service and lack of innovation in many parts of the industry. They have uprooted the need for bank branches by making the very idea of queueing in a physical location to transfer money or waiting on hold on the telephone for customer support seem unusual or eccentric.
As a result, the market share for current accounts of the big four legacy banks (Barclays, Royal Bank of Scotland/NatWest, HSBC and Lloyds) has lost ground, from 92% of all bank customers a decade ago to around 70% today. Research has also found that digital-only banks Monzo and Revolut are on track to triple their customer base to more than 35 million over the next 12 months.
In the face of new competition, many banks already realise that they can no longer rely on old practices and that they must digitally transform. However, transforming an embedded culture and organisational structure is easier said than done. It requires traditional banks to completely rethink their practices in order to meet shifting customer preferences and the emergence of new technologies such as banking apps.
At Publicis Sapient, we have outlined three clear models of digital business transformation in order to help banks compete against digital-only banks.
When transforming for the digital era, banks must gradually change mindset and infrastructure, working towards a more effective structure. This is fundamental to the future success of any cultural approach, as moving too fast can produce cultural backlashes that can hold back innovation and adoption of new ideas or practices.
Moving slowly is only one part of this approach. In order to ensure that company mindset truly evolves, banks must also revisit their ethos and structure, invest in communication and training, and create a clear and comprehensible digitalisation plan. As part of this, it’s crucial to eliminate silos and develop robust strategies for employees to get behind their new plan.
Fundamentally, the evolve approach requires banks creating a “movement” that facilitates change across the wider organisation. This requires banks demonstrating the value of digital transformation to employees across multiple offices and organisations.
The jump method centres on platform modernisation. In other words, this approach is less about incremental change, and more about ‘jumping’ in feet first. It involves creating a new shell onto which the existing business can migrate. In order for this method to be successful, a step-change in cost-to-income ratio and customer experience is crucial. By adopting new strategic platforms and ways of working, with continued but reducing connections to the existing business systems, this model requires a willingness to trial new approaches and, in turn, decommission the legacy systems.
Banks that follow the ‘attack’ approach try to recreate the dynamism of fintech startups within their organisation. This can mean creating either an internal innovation lab or going into a partnership with an external technology provider to create a separate, almost rival banking platform. Initiatives such as these allocate space to incubate ideas internally with considerable time and investment. They also overcome the cultural issues that big organisations come up against by building small teams in the company to develop new, competing platforms. However, they must be customer-oriented: new, self-contained enterprises within the business should focus on addressing a unique customer need rather than delivering a specific product.
When digitally transforming, legacy banks need to ensure that they implement a strategy that works best for their organisation. However, most banks when considering where to invest their change budgets should take a “portfolio approach” looking across their business lines to see where it is most effective to Evolve and look for opportunities to either Jump a business line such as Payments to a new platform or even create separate digital enterprise through an Attack approach. Essentially, banks must take a holistic view on changing both cultural attitudes and structural problems.
THE ‘LEGO-IFICATION’ OF BANKING IT AND THE RISE OF DIGITAL FINANCE ECOSYSTEMS: FOUR PRIORITIES FOR BANKS IN 2020
Danny Healy, financial technology evangelist, MuleSoft
The advent of the open banking era and continued emergence of fintech has forced customer experience up the banking agenda. According to McKinsey, of the 50 largest global banks, three in four have now pledged themselves to some form of customer experience transformation.
Understanding the importance of customer experience is one thing, being equipped to deliver a good one is another thing entirely. As banks look to technologies such as multi-cloud and AI to support more sophisticated customer experiences, their IT teams face an uphill struggle to integrate these initiatives with their existing systems. Across all industries, more than four in five (84 percent) of IT leaders claim these challenges are putting the brakes on their organisation’s digital efforts.
To get around this challenge in 2020, banks now need to focus on re-imagining their IT departments in order to unlock their digital capabilities and empower business-wide innovation. Here are four key areas that banking IT teams will need to focus on in the year ahead to make this a reality.
Repackaging IT into reusable building blocks
IT efficiency is crucial to the success of digital transformation initiatives; it’s one of the main reasons why small, nimble fintech companies have been able to steal a march on their more established rivals. As such, banking IT departments are under substantial pressure to deliver more, faster. However, IT can no longer keep up with the demands of the business; little over a third (36 percent) of IT professionals were actually able to deliver all projects asked of them last year.
To get around this growing IT delivery gap, we’ll see IT move away from trying to deliver all IT projects themselves in 2020. The IT team’s role will evolve to changing, operating and securing the bank’s core IT assets along with building and managing reusable APIs, exposing digital functionality that the rest of the business can consume to create the solutions they need. Essentially, IT begins to create new building blocks (APIs) that can empower both the technical and the broader lines of business users to innovate and build new digital banking solutions without compromising the core IT estate. Banks have already been compelled to create API strategies to open up collaboration opportunities with third parties; this year, we should expect to see them apply the same principles internally. Rather than being the bottleneck that prevents banks from launching innovative new products, IT can empower them to digitally transform and innovate faster than ever before, shifting from being an “all doing” to an “enabling” organisation.
A wise investment in AI
Banks are investing more in AI each year, as they look to use the technology to transform traditional banking processes. In principle, AI has the potential to revolutionise everything from credit decisions through to risk management and trading platforms, alongside the capability to offer highly personalised customer experiences. Yet for most banks AI hasn’t yet reached its full potential, as data is locked up in siloed systems and applications.
In 2020, we’ll see banks unlock their data using APIs, enabling them to uncover greater insights and deliver more business value. If AI is the ‘brain,’ APIs and integration are the ‘nervous system’ that help AI really create value in a complex, real-time context.
Harnessing the power of containerisation with APIs
Despite taking a more cautious approach to the cloud than other industries, many large banks are now using multiple clouds to support the delivery of both internal and external services. But multiple clouds are difficult to manage and being able to move workloads between them remains a significant challenge.
This year, we will see banks begin to use APIs in tandem with containers to navigate multi-cloud complexity. APIs will unlock the data and unique functionalities of applications residing in multiple cloud environments, while containers will neatly package up code and all its dependencies, so the application runs quickly and reliably from one computing environment to another. For example, HSBC has built a multi-cloud application network to meet growing customer demand. Turning to the cloud to accelerate IT delivery, HSBC has built and published thousands of APIs that were deployed across multiple environments using containers to unlock legacy systems and power cloud-native application development.
Open banking and the rise of the digital ecosystem
When it first appeared, open banking gave rise to all manner of opportunities for banks to collaborate with third parties on shared services. This year, we can expect to see banks take this further, and experiment with broader digital ecosystems where their services seamlessly fit in with those from other providers across diverse industries. This is the start of a fundamental shift from traditional financial services, where banks look to ‘own’ customer engagements entirely. In the new model, each of these provider will coordinate their financial services across the same ecosystem, without ever ‘owning’ the customer.
Banks will thereby look to extend their own capabilities and customer data to other businesses via APIs. For example, Mastercard has turned many of its core services into a platform of APIs, allowing it to create the Mastercard Travel Recommender, which allows travel agents and transportation providers to access customer spending patterns and to offer customers targeted recommendations for restaurants, attractions and activities. Expect to see other financial services companies take this approach in the year ahead, along with focusing on providing an excellent developer experience around their APIs to drive competitive advantage.
The year of connectivity
Data and digital transformation are both well-established priorities for the entire financial services industry. As we continue into the new decade, attention will increasingly shift towards the connectivity that unlocks the value of data and underpins the success of digital transformation initiatives.
APIs will play the key role in meeting the banks’ new connectivity requirements. By reimagining digital assets as a set of digital building blocks, bankscan enable every stakeholder within the business to contribute to digital projects, democratising the ability to innovate. By doing so, they can transform the IT department from a cost centre into a source of value that will truly help to create the bank of the future.
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