by Jason Tassie , Director – www.knowyourmoney.co.uk
The banking landscape has transformed over the last few years with the emergence of new providers, largely thanks to the vast growth of technology. Even as little as 10 years ago, the ‘big four’ high street banks dominated the banking market and were the only real choice for people looking to open an account or use their other services.
Over the last few years, however, a range of ‘challenger banks’ have appeared that are changing the way we bank. As well as being new names, what separates these challengers from the traditional banking providers is their online and digital nature. Rather than having a physical branch that customers can visit, these challengers tend to operate solely online, particularly via mobile apps, although some do have premises customers can visit such as Metro Bank and Virgin Money. However, this article will be looking primarily at the digital-only banks that are growing increasingly popular, especially among the younger generations. The use of fintech by these banks makes them more efficient, adaptable, and responsive to change so they can cater for the specific financial needs of their customers.
Digital challenger banks come with a range of additional features that many traditional banks don’t provide, even if they too have a mobile app. Of course, as a standard, most banks would offer current accounts and enable customers to perform several basic services such as transferring money, receiving payments, and withdrawing money. However, mobile challenger banks also come with other features that can help customers to manage their finances and achieve their spending or saving goals.
Depending on how individuals plan to use a challenger bank account and what their priorities are, they will be looking at some of the following features.
Not every challenger bank offers the same services and functions, so it is worth double-checking what each one provides. Most will allow you to transfer money in and out of your account, but not all of them will enable you to set up direct debits or standing orders, and some may charge fees for cash withdrawals.
Many challenger banks also have real-time spending notifications so you can see immediately when money leaves your account. This is not only helpful to keep on top of how much you spend, but also to quickly identify if anyone uses your account fraudulently.
Although there are some exceptions, the majority of challenger banks offer a bank card alongside their digital service, which customers can freeze/unfreeze via their mobile if it gets lost or stolen. Customers should be aware that they may need to pay a small, one-off sum to receive their card.
A key attraction of mobile challenger banks is their ability to help customers control and manage their finances. For example, some may categorise your spending into eating out, leisure, bills, travel, and more, which enables you to identify where you could afford to cut down your expenditure. They may also offer a ‘spending report’ or ‘spending projection’ which further highlights how you could manage your money more effectively, whilst some may give you the option of setting spending limits.
If you’re looking to increase your savings, some challenger banks offer further tools that can help. For example, some have ‘savings pots’ where you can easily transfer money from your main account, schedule monthly deposits, and round up transactions to put any spare change into savings. These savings pots are not the same as a savings account.
Most traditional banks will offer an overdraft facility to its customers, but this is not necessarily something provided by all challengers. If an overdraft is something you think you need, then it is worth looking into whether you can get a prearranged overdraft with a challenger bank and what, if any, fees would apply.
Whilst many challenger bank accounts are free, customers should always look out for potential fees. As discussed above, getting a bank card or overdraft may incur fees, but some challengers may also charge for cash withdrawals and for any of their ‘premium’ accounts which offer additional features.
If you travel a lot, it is worth checking out what overseas functions the challenger bank can provide. For example, some banks may not place any fees on transactions or withdrawals made abroad, whilst some will.
Safety and protection
Particularly with new and unfamiliar names, it is important to do some research to make sure they are a legitimate bank. Every provider should be regulated by the Financial Conduct Authority (FCA), and many will also be part of the Financial Services Compensation Scheme (FSCS). This latter scheme protects the first £85,000 of your savings, ensuring you will receive compensation should anything happen to your provider.
Unlike with a traditional bank, if you have a problem, you can’t just go into your local branch to resolve it. All queries and issues will be dealt with online through the app, and many will provide a 24/7 live chat service, which goes beyond what many high street banks can offer.
What else can challenger banks offer?
Originally, these challenger banks were primarily focused on providing current accounts and helping people manage their everyday banking needs. Now, however, many are expanding into other banking areas, such as savings accounts, mortgages, loans, and more. These extra functions are not offered by every challenger bank, so customers should consider exactly what they currently want from their bank, as well as their potential future needs, to help them decide which provider to choose.
FINTECH VS TRADITIONAL BANKING
With customer demands and behaviours evolving quickly in light of Covid-19, Will Hurst, Head of Commercial Development at Monevo, looks at whether traditional banks are failing to keep up with their expectations and what key trends and changes have opened the door to the rise of fintechs.
The financial services competitive landscape has evolved in recent years and it’s clear that fintechs have certainly disrupted traditional banks.
Fintechs include any financial tech company that serves any of the following areas; lending, blockchain, reg-tech, personal finance, payments and billing, insurance, capital markets, wealth management, money transfer and anything to do with the mortgage process.
While digital banks are referred to as fintechs, and have certainly challenged traditional banks in terms of luring away their customers, it would be simplistic and inaccurate to identify that all fintechs are in direct opposition to traditional banks.
In many cases, fintechs are often working in tandem with traditional banks, and allow market incumbents to diversify their suite of products and further monetise their client base.
As with other sectors over recent years, the financial services sector has experienced rapid digitisation and a shift towards online operating models.
Traditional banks have seemingly struggled to keep pace with the ever-changing tech and resource demands of consumers, while the stellar rise of the challenger bank certainly indicates they’ve met consumer demand and they’re here to stay.
In recent years, it’s easy to identify the winners, with the likes of Starling bank voted best British bank for three years in a row, and the losers, as Natwest decides to kill their app-only digital bank Bo after just 5 months.
Not only does this serve as a cautionary tale to other incumbents that harbour aspirations to make in-roads into the digital bank space, it indicates that challenger banks aren’t just a pretty fad with cool messaging slogans, but address very real and immediate needs of consumers with innovative product offerings.
Partnerships for the win
In recent years, we’ve seen big tech partnerships that allow well-known names in consumer finance to partner with and harness the bright sparks of the fintech world. Whether it’s Marcus – the online bank from Goldman Sachs – partnering with Saga to offer savings accounts, or in the price comparison world, where CYBG and Go Compare partner for energy switch services, or consumer brands such as the AA partnering with the personal loan marketplace platform Monevo.
These developments come down to two things; driving down the cost of customer acquisition for banks and lenders, but more importantly, meeting the requirements of the consumer with products and solutions to the problems they face. Strategic partnerships allow both parties to achieve greater scale, and improve customer reach.
Further fuelling the drive towards collaboration and partnerships has been spurred by the onset of open banking.
We’re still very much at the start of the open banking revolution, but essentially, open banking means the use of open APIs that enable third-party developers to build applications and services around financial institutions. In layman terms, this means under new open banking rules, your bank must let you share your financial info with third party providers – should you choose to do so.
You may decide to share your spending habits, or details of regular payments, or companies you use. All of this allows consumers to access additional products and services such as personal finance apps that analyse and help manage spending, or offer a centralised overview of all financial accounts in one place.
Yolt, from ING Bank, is one such example of an app that helps centralise all of a consumer’s financial accounts in one place, set financial goals, and “spend smart”. Open banking has driven competition and innovation within the financial services sector, as it was designed to do so, and the pace of change in all areas of fintech banking will continue to revolutionise both the customer experience and financial products.
As credit providers get their head around the vast volumes of data available on their potential and current customers, intelligent product builds will help lenders and other other financial services companies to filter data into what is useful to them, and optimise revenues accordingly.
Another factor that helps explain the heating up of the fintech banking sector in recent years is the change in consumer demographics. Since the financial crash in 2008, younger generations have had to struggle with multiple financial challenges including the increase of house prices, the rise of the gig economy and lower comparative wages.
Against this context, it’s no surprise that Millennials’ demand new and innovative financial products to help them overcome financial hurdles of plunging levels of savings and soaring debt – something incumbent banks have arguably been slow to move on.
Without the cost of physical high street branches, digital-only challenger banks such as Monzo, Revolut, Starling Bank have been able to focus investment on tech and partnerships to provide a range of products marketed specifically to the first wave of cost-sensitive “digital-natives”, pitching brightly-coloured bank cards with frank and friendly tones of voice when communicating to their customer.
Above all, Millennials value products and services that deliver convenience and simplify their lives – an element that Monzo, Revolut and Starling have all embedded successfully into their respective brands and product offerings.
Predicted trends indicate disruption to the banking sector via fintech innovation is set to continue, and indeed we see more examples of smaller fintechs springing up to serve the underbanked, or those struggling to manage their cash, or build credit scores – areas historically ignored by the major banks.
HOW IDENTITY IS SECURELY UNLOCKING THE SME BANKING MARKET
By Mike Kiser, senior identity strategist at SailPoint
Have an identification card in your wallet? With a selfie and a few short minutes, you could have access to a business bank account.
Small and medium enterprises (SMEs) have long been the fuel that drives the global economy, representing around 90% of businesses and more than 50% of employment worldwide. Over the last few years, a range of financial services and platforms have arisen over the last few years to support the banking needs of these organisations. They are often digital natives and are innovating to meet the needs of their clientele.
This innovation provides great ease-of-use and rapid access to credit but also demands a careful consideration of their assumed security approach. The aforementioned scanning of an identity and a quick photo to establish a bank account demonstrates the rising importance of identity in both the consumer and enterprise arenas.
The blurring of the lines between personal and corporate identities (in this case, an individual acting on behalf of a small business) is still in its infancy. Combined with the ubiquity of mobile devices, individuals will tire of maintaining different accounts, different personas, different lives for each activity. Usability will demand that identity be reusable, portable, and secure.
This has massive implications for enterprises and the financial institutions that serve them if they seek to prevent cyber-attacks; thankfully, the same element that presents the security challenge also offers the solution: identity.
A New Vantagepoint
Just as individuals desire a single identity to unify their interaction with disparate parts of the world, organisations can use identity to grant them a single, holistic view of an individual (attributes, access, and behaviour) rather than seeing only a fragment at a time. This is particularly important for these new financial institutions—much of their technology stack is cloud-based, which often leads to splintered security approaches. An identity-based approach must be cloud-aware, and able to distil these complex environments into simple and easily governed infrastructure.
This collectivisation also allows security to use identities in the aggregate: to see what groups of similar individuals exist, what access these groups have, and what their usage of this access typically is. All of this contributes to the establishment of what normal is, whether it’s attributes, access, or behaviour. Once the “normal” is established, then the outliers—the potential threats—may be quickly triaged.
Adaptability: The New Imperative
The recent wave of change has demonstrated that financial institutions and organisations must be ready to adapt quickly to shifts in the environment. Portions of IT staff and services have been furloughed, and adjustments to new realities are essential. An identity approach that learns from the evolution of changes in the previously established areas of normality can grant enterprises the ability to see what is coming next and invest appropriately. Much like a view from an elevated position grants the ability to see beyond the normal horizon, basing a security strategy on identity makes it inherently adaptable.
Identity: Innovation and Security Intertwined
Identity, then, is a foundational consideration for financial institutions seeking to provide services for the perennially important small and medium enterprise sector. By eradicating barriers to entry that have historically kept financial organisations and enterprises apart, it is driving rapid adoption and a growing market for innovative banking. At the same time, it shows the path forward to securing those new services in a pre-emptive, adaptable way.
Now if you’ll pardon me, I must go open a bank account for my next start-up—from my mobile.
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