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1 IN 4 MILLENNIALS AND GEN-ZS ARE USING CHALLENGER BANKS WITH MONZO THE MOST POPULAR

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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%[1], 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[2]. 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/

 

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Banking

TO ENABLE BETTER LENDING FOR PEOPLE AND BUSINESSES, WE HAVE TO LOOK TO OPEN BANKING

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By Iain McDougall, CCO of Yapily

 

A recent FCA study found over 14 million people were grappling with financial issues at the end of 2020, representing more than a quarter of the UK adult population. The picture is similarly tough for SMEs, too, which have been impacted hugely by lockdowns, loss of earnings and more; it’s estimated the pandemic will cost SMEs an extra £173,000 in debt per year.

This is resulting in a lack of lending options for both consumers and businesses, as well as expensive or high interest loans, or worse, rejection from lenders all together. This in turn is driving unaffordable lending, and penning consumers and businesses in an ongoing and irresolvable debt cycle – at a time when they need the most support.

One of the biggest causes of this lies in lenders relying on credit scores and credit bureau data to inform their decisions, which simply aren’t accurate enough to truly get the full picture of a borrower’s financial situation.

The case for using Open Banking data in lending decisions has never been stronger.

Data accessed through Open Banking permits lenders to retrieve accurate information about the borrower’s financial history. This can provide more accurate assessments, and therefore enable fairer lending decisions.

 

Credit scores aren’t helping consumers

Take NHS workers as an example. Despite working tirelessly throughout the pandemic, NHS workers make up a sizable portion of the UK adult population currently struggling with debt.

Iain McDougall

An independent report from the University of Edinburgh Business School, in partnership with Salad Projects, found NHS workers are heavily reliant on long-term overdrafts and high-cost credit, where APR is as high as 1,333%. Almost all (93%) respondents said they use one or more types of credit or loan, compared with 75% in the wider UK population (according to the Financial Lives Survey). More than half (58%) use up to three loan providers and 68% use up to four loan providers.

This situation is the result of relying solely on credit scores. While these are the near-universally accepted method of determining credit terms, each credit reference agency has a different method for calculating a credit score. They rely solely on financial history, whether they’ve previously defaulted, or failed to get credit, and not a consumer’s actual financial position, whether they’ve recently got a pay rise or new income, to see how likely it is they will pay back any money borrowed. This can mean, no matter if a consumer’s financial position has changed, they can’t get a better loan because of a previous discrepancy.

 

The challenges facing SMEs

These issues are not just limited to consumers. SMEs, particularly those in the hardest hit industries like hospitality and travel, have struggled to access credit throughout the pandemic.

While many may have been thriving pre-pandemic, their lack of ability to turn a profit during lockdowns, meant they needed extra support. In an effort to keep these industries alive, we saw numerous government backed loan schemes launched, such as the Bounce Back Loan Scheme, to help struggling businesses survive. In total, these schemes have provided almost £180 billion worth of lending to date, supporting over a quarter of businesses in the UK.

However, the soaring demand from businesses in need of these vital funds meant lenders were unable to keep up and many businesses did not receive support quickly enough. What’s more, providers may register these types of loans with credit reference agencies, which means companies that previously had strong credit ratings may see their credit scores negatively affected by any delayed or missed repayments.

This is why it’s vital for lenders to get lending limits right the first time round, so SMEs can avoid potentially adding to their already growing list of debt and thrive in a post-pandemic world.

 

Enhancing lending with Open Banking 

Using Open Banking can add a much-needed layer of trust and loan personalisation for businesses and individuals. By basing credit decisioning on real-time financial data, lenders will be able to create a more accurate picture of their financial situation; and so make fairer credit offers.

Through adopting Open Banking principles, lenders will be able to onboard new customers and grant loans more efficiently, providing businesses with the cashflow required to maintain their workforce and support the economy.

With the borrowers’ consent, it will also give lenders oversight into how the economy is recovering, and enable them to monitor the rate at which the individual or business can expect the loan to be repaid. Meaning they can step in and provide extra support if and when required.

Open Banking provides what credit scores alone simply cannot – real-time insight into an individual’s or a businesses financial position right now, not three to six months ago. By leveraging the data that is readily available to them, lenders could achieve far better and more responsible outcomes. This will reduce the risk of loan default – for both businesses and individuals – and lead to more responsible lending decisions that can help people and businesses bounce back after what has been a difficult year.

 

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Banking

BRAND CONFIDENCE: HOW HAS OPEN BANKING EVOLVED AND DO CUSTOMERS TRUST IT?

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By Geoff Boudin, Director at Revive Management

 

The open banking industry is growing by 24% year-on-year, and is expected to be worth more than £31 billion by 2026. The implementation of the 2018 Payment Services Directive known as PSD2, was intended to boost competition in the name of open banking. The directive, which set out to make payments more secure, by requiring banks to share the data of customers who authorise it with third parties. This allows customers to share their financial information with authorised service providers such as budgeting apps and other third-party money management tools. It was initially called for by the Competition and Markets Authority (CMA) to level the financial playing field and empower consumers by giving them more ownership over their financial data.  So, two years on, what impact is open banking having on consumers? Do they trust it? If so, how can brands build on this trust to offer more a more personalised yet non-intrusive experience that delivers the data to further improve their service offering.

 

What difference has open banking made?

Prior to PSD2, which came into force on 13 January 2018, banks had full authority and jurisdiction over their customers’ financial data. The idea of a bank giving up some of that data to a third party for the benefit of their customers was unheard of. This closed ecosystem, however, runs against the drive towards digital openness, connectivity and convenience. Our digital worlds were opening up and data was becoming democratised, and banks were being left behind. Challenger banks such as Monzo and Atom, which embraced innovative new apps and features, had been making headway for years, and there was a sense that third-party customer-focused innovation was rumbling away under the surface. However, that innovation was stifled until PSD2 laid a path for it, requiring banks to open up access to customers’ data at their behest.

It’s thanks to PS2D and open banking that customers are now able to connect their bank account to a third-party app that can help them better manage their money or sign up to a platform that allows them to access all of their accounts and credit facilities in one place. This allows customers to control their finances as never before.

 

Driving innovation

Empowering and improving the customer experience is one great achievement of open banking. Another is the innovation it has prompted across the entire financial sector. Even traditional banks like HSBC prepared for PSD2 by rolling out its own ‘Connected Money’ app, which allowed its customers to view data from all of their bank accounts – as well as mortgages, loans and credit cards – all in one place. This value-add to the customer experience probably wouldn’t have seen the light of day if not for the competition spurred by PSD2 and open banking. Many other banks and financial services providers have followed suit, offering new customer-centric features based around convenience, visibility and control.

Open banking is a huge step forward in the financial world. So why do some still liken it to a sleeping giant? What’s holding it back?

 

Managing trust and data security

More than 2.5 million consumers in the UK are now happy to connect their accounts to trusted third parties in exchange for some value-added benefit. That’s up from 1.5 million in 2020, no doubt driven by the competitive innovation brought about by PS2D. However, open banking adoption across the rest of Europe seems to have been much slower, and even growth here in the UK is beginning to plateau. While some might blame this on Brexit-induced regulatory changes, such as UK firms no longer being able to use the EU’s certification standards to share customer data after June 2021, there is much more at play.

A Europe-wide survey by thinktank ING polled 13 countries – including the UK – and found that only around 30% of consumers were happy for companies to share their data even after they had given consent. What’s more, only 35% of those polled had even heard of open banking capabilities. This points to issues surrounding data security, trust and awareness – all hurdles that can be overcome by banks, financial services providers and fintech innovators.

To make the most of open banking, banks will have to innovate and forge fintech partnerships with companies using their data sets. That will enable them to enhance existing products and leverage new fintech products being created with their data which will, in turn, benefit their customers.

This process of innovation has already largely begun, but if brands are to take full advantage of all that open banking has to offer, they still need to bridge the trust gap with consumers. We see consumer education, especially in the field of security, as having a key role to play in building confidence and consequently optimising uptake of open banking.

 

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