By Mike Rhodes, CEO of ConsultMyApp
The pandemic has seen unprecedented disruption for many businesses, however, unlike many sectors, the fintech and digital banking space has remained steadfast in its growth.
In fact, investment into the UK FinTech market reached $4.1 billion in 2020 – more than the next five European countries combined – and the global FinTech market is forecasted to reach a value of £380 billion by 2030. Moreover, during the pandemic, digital banking has seen a significant increase in uptake, with 73% of British consumers embracing e-banking offerings.
However, whilst the FinTech market has become one of the fastest-growing sectors of our economy, established banking institutions now find themselves caught on the back foot. If they are to truly rival new market players like Revolut or Tide, they must innovate their digital offering. Yet, despite their efforts, traditional banks are failing at the in-app experience and still struggling to create true differentiation, as they end up applying a lick of “app” paint to the old underlying infrastructure. Instead, challenger banks continue to outperform them, providing a ‘one-stop-shop’ for customers’ financial needs.
So, how have FinTechs rapidly gained market authority in a typically ‘closed shop’ sector and can traditional banks innovate to compete?
A new digital age
The rise of FinTech challengers is nothing new. In fact, the FinTech sector has been growing at a steady pace for the last decade. Prior to the Covid-19 pandemic, the banking sector was calling out for digitisation and the way in which banks were regulated was already being debated. Initiatives like open banking were being considered as a way to encourage competition within the industry and enable smaller challenger firms to start to rival the traditional market players.
However, despite this gradual trajectory, it is safe to say that true open banking has caught established institutions off guard. App-based challenger banks such as Monzo, Starling and Tide have revolutionised how individuals and businesses interact with their banks, as well as altered their expectations.
To put it into context, by 2022 open banking in the UK is expected to generate more than $9 billion of revenue opportunities for financial service providers – and over 10 million Britons are expected to participate.
As lockdown and social distancing restrictions hindered in-person sales and services, customers have increasingly turned to FinTech challengers as a more convenient and efficient way to manage their finances. Amid this backdrop, challenger banks have remained at the forefront of consumers’ minds and developed a strong and sustained customer base.
Under 30-year-olds now want to interact with their bank in a different way and we are only set to see the FinTech market become more saturated as individuals continue to demand new ways to keep track of their finances in the digital world. Therefore, traditional banking institutions need to overhaul their approach if they are to compete within the digital space.
Innovating to compete
Traditional banking institutions are growing smart to the fact that they need to modernise their offerings if they are to remain market leaders, however, the problem of archaic technology is holding them back. Current skill sets remain targeted at web services, whereas world-leading mobile products need a properly structured specialist team that understands the additional tools required and to ensure the technology is seamlessly integrated. It’s an uphill battle for traditional banks, but it is not impossible.
As a priority, mobile-first user acquisition campaigns, smooth onboarding, app store optimization and customer engagement/retention are the four essential basics any successful banking app will need to master. Fintech companies are also leaps and bounds ahead of established banking institutions when it comes to producing personalised content. By utilising in-app and external data, challenger banks have been able to adapt and innovate the user experience according to specific preferences and interests. By pairing app and message personalisation with dynamic content, FinTechs are able to connect with users propelling them into a different league when it comes to customer engagement. Investing in key marketing strategies to build awareness and producing personalised content will be key to developing a competitive edge against rising FinTechs.
Traditional banks should also consider launching a spin-off brand – in other words, their own challenger brand that more closely reflects what open banking leaders are doing in the space. Launching a new mobile-first offering will enable banking institutions to evolve the customer journey in line with their specific needs and new market developments.
Looking ahead
With more than half the world already using a least one FinTech service, the market has never been more competitive. In fact, Revolut now has more than 14 million users in the UK alone and is worth more than the long-standing high street bank NatWest.
Therefore, traditional institutions cannot afford to ignore the new wave of digital banking that has rapidly gained market authority. Instead, they must embrace the value of investing in the key marketing strategies needed to build awareness, improve the customer experience and develop a competitive edge, if they are to compete with leading challenger banks.
Some have already started to make significant inroads, for example JPMorgan Chase recently announced plans to radically increase its spending on technology to $12bn this year to fortify its competitive position. This monumental spend aptly demonstrates that established institutions are still very much in the race, however, only time will tell if these investments can be used to rival the challenger banks that are trying to disrupt them.
