Invest in Digital Today to Challenge Mobile-Only Banks Tomorrow (part 1)
The financial crisis of 2008 left the banking industry in ruins, and none of the established institutions emerged unscathed.
To prevent a similar meltdown, the requirements to obtain banking licenses were relaxed to encourage market competition through the creation of new banks. This paved the way for the emergence of a new generation of mobile-only challenger banks, who are seeking to rejuvenate the industry. The big question is: Should traditional banks be worried?
The march of mobile
The British Bankers Association predicts that in 2020 consumers will use their mobiles to manage their current account 2.3 billion times – more than all other channels, including internet and telephone banking, combined. Mobile banking is particularly popular with the younger smartphone natives; the generation that will become the lucrative banking customers of tomorrow. From taking out student loans to fund education and credit card spending on travel, right through to the time when they come to get a mortgage, it is this generation who will be most profitable in the years to come. Getting mobile right is therefore increasingly important, so it’s unsurprising that we’re seeing a number of new players – such as Number26, Ospel, Simple and Atom – cashing in on this insatiable appetite for mobile. These new contenders are cutting out the shop-front and going mobile first.
Mobile-only banks have a strong potential to entice millennials, who are more interested in app store ratings than interest rates. Without a branch or website to distract them, these pure mobile offerings have only one thing on their mind – delivering a flawless mobile experience. With mobile being the number one channel for most customers, for high-street banks to compete effectively, they need to ensure that their mobile applications are just as good – if not better – than their upstart competitors. When you consider the new Current Account Switch Service, introduced by The Payments Council – which enables consumers to switch banks in just seven days, rather than the 30 days it took previously – this should act as a wakeup call to banks with underperforming mobile services, as it will be even easier to switch after a bad experience.
Competing with the challengers
Atom has already been granted a license to operate in the UK, but it has been reported that the company has refrained from launching its mobile application until it is confident it can deliver a flawless user experience. The resources invested into the performance of Atom’s application prior to launch highlights how seriously the company values the user experience. Research suggests Atom is getting its priorities spot on, particularly if they want to get to that lucrative millennial market: 49% of millennial smartphone and tablet users would go elsewhere if a mobile site or app fails to load in three seconds or less. In the second part of this blog, I will look at how high street banks can not only compete with these challenger banks – but beat them at their own game.