Rising to the challenge
Challenger banks are well named.
But, in seeking to challenge the traditional high street banks, they face inconsiderable challenges.
Headlines should suggest that the public have had enough of mis-selling and scandals from the traditional banks and are ready to dump them en masse. Not only this, but there is the fact that traditional banks have been slow to innovate compared to challenger banks and the alternative finance competitors. Both of these new sectors are offering products and experiences far removed from traditional banks. Surely, then, they are ready to take over. The reality, though, is somewhat different.
A survey by the UK Competition and Markets Authority last year showed an altogether different picture:
- 37% respondents have held their current accounts with the same bank for 20 years or more
- 58% think it is important that their bank has a national branch network
- 3% of bank customers switched their main accounts last year.
These figures present, on the surface, a somewhat depressing picture for those who want to take on the banking giants. And, yet, all might not be as bad as it seems.
In the same month, the British Bankers’ Association released figures showing that mobile apps were now the most popular way for UK consumers to interact with their banks.
For all the talk of consumers wanting a national branch network, the simple truth is that they rarely actually visit branches.
So, are there other glimmers of opportunity for the challenger banks?
The short answer is: yes.
Looking at the 3% of those who switched their main accounts, this raises a concern especially when the Payments Council launched their Account Switching Scheme in September 2013 with the aim of making it easier to switch.
What, then, can be holding this back? A report Jumio published last year, Is Verification The Achilles Heel In Account Opening?, showed that friction in the account opening processes of traditional banks was causing high levels of abandonment.
The report highlighted that only around half of those who attempted to open an account online completed it. One of the key reasons was the verification process. In too many instances, customers who had started the process online had to go to a bank to verify their identity.
It’s not surprising, then, that there is such a high abandonment rate. And this is the opportunity that challenger banks can take advantage of.
If they want to turn the 3% of account switchers into double digits or higher, the first priority should be to fully digitise the process. This means making the entire process online from start to finish, while ensuring the safety and securing of customers.
Of course there are still critical Know Your Customer (KYC) and anti-money laundering laws to adhere to, but these can be complied with by scanning and verifying IDs, such as passports, via webcams or mobile devices.
Through leveraging new technology and making customer on-boarding as quick and easy as possible, challenger banks will gain the upper hand over traditional banks. Once that happens, who knows what will happen next…