How challenger banks can become the future of financial services

By Jeremy Grinbaum, VP EMEA, Amplitude

When it comes to innovation, the financial services (finserv) industry has been notoriously slow. However, a new wave of new digital tools is transforming this. In fact, 74% of banks are attempting to accelerate their digital transformations in 2023. In spite of this, the finserv sector is still reeling from a tumultuous period that has led to a nosedive in consumer trust. At a time when people are shifting their money to “too big to fail” banks and dismissing challengers, customer experience is essential.

However, the future could still be bright for the neobanks — a new wave of finserv companies that offer services completely online. McKinsey revealed that revenues within the fintech industry will grow three times faster compared to the traditional banking sector between now and 2028. Yet, fintechs and tech-forward challengers must first navigate this distrust, as well as an increasingly crowded market and ongoing economic instability. Investing in the digital product experience will help these challengers build a competitive advantage and differentiate themselves from legacy competitors. Let’s look at how they can do that.

Create a user-friendly product

The first rule of finserv customer experience? Create an easy-to-use product. Consumers won’t leverage a tool that is in any way difficult to use. Financial products must be simple and efficient and should alleviate users’ stress — not create it. To ensure this, neobanks should identify the core workflows and intended user journeys, as well as pinpoint where processes can be streamlined to continually improve the product and its ease of use. Even small changes to the customer journey can have a major impact on user retention and lifetime value.

For any product—but especially fintech—ease of use is critical for user activation. Customers who have to jump through hoops for simple tasks, such as managing assets or making trades, will simply find an easier solution. If neobanks want to grow, retain, and serve a large user base, they must make their product accessible and accommodate different levels of financial knowledge. Some challengers are already aware of this, with companies like Lendtable, Klarna, and Affirm supporting their customers in their activation journeys, no matter their level of financial knowledge.

Leverage metrics to elevate the customer experience

Challengers can’t improve the customer experience without understanding the broader financial end goals of each user. Take the example of someone using a product to pay off student loans. While the transactional component of making payments and saving money is important, the way to go above and beyond is to ask the question, why does a particular person want to pay off their student loans? Maybe to buy a house, start a family, or open a savings account for their kids. Challengers need to view their product from the user’s perspective: start with a financial goal and then build an exceptional product experience to support that.

The question then shifts to: is the product helping users achieve their desired outcomes? Success metrics used to track the customer journey include acquisition, activation, and engagement. All three hold importance, but measuring engagement often isn’t the main priority for challengers, as their products are designed to be used for a specific purpose and for shorter periods of time. In this instance, a better indicator of success would be task efficiency, where users are both completing tasks and achieving their intended outcome.

Like any business, neobanks want to keep retention rates high. This usually means ensuring customers keep coming back to the product, but this isn’t really the case with fintech solutions. Challengers may not want people returning to the product daily or even weekly. Identifying the user’s goal will clarify which retention metrics should be monitored and what good retention looks like for a financial product.

Understand the importance of consumer trust

Trust is central to the finserv industry. With recent market instability and economic uncertainty, consumer trust is starting to erode. But challengers can regain it. For fintechs and challenger banks where the longstanding credibility may not be there yet, they must show why they are deserving of users’ trust.

Customers have remained loyal to their local legacy bank branches for the same reason they remain loyal to other local amenities: the trust built through personal relationships.  Now, bank branches are shuttering, but the desire for personalisation remains. It’s down to challengers to recreate these personal, small-bank experiences digitally. With long-established banks encumbered by legacy systems, this opportunity truly falls to the cloud-native, agile neobank.

To create a data-driven personalised experience, challengers can serve notifications and recommended actions where and when appropriate. For instance, delivering an in-app push notification about progress toward a financial goal. Pairing this with a recommended next-best action can be a game-changer for retention — and trust. If a fintech understands its users’ goals and why they take the journeys they do, then it can tailor communications to improve the product experience. Establishing this type of trust will increase retention and present opportunities to cross-sell into more areas of financial portfolios.

Taking on legacy institutions is no easy feat, especially for an industry heavily affected by economic instability and consumer distrust. But, by focusing on understanding their customers’ goals and ensuring their product is easy to use, challenger banks can come out on top and set themselves up for long-term growth.


Explore more