Challenging the Challengers: three sources of competitive pressure in retail banking and how to respond

In our recent UK consumer survey we uncovered evidence of a quiet revolution in retail banking: 1 in 4 under 37s have confirmed they are using digital-only challenger banks and 14% of UK bank customers across all age groups have at least one mobile-only digital banking provider.

The market for current accounts is highly active, with many people having two or more bank accounts and being open to trying out more. Banks which offer easy account opening and a high-quality mobile user experience stand to attract customers away from any incumbents which lack offerings that appeal to digitally demanding modern consumers.

The rise of new challengers in banking cannot be ignored, since they are fast to gain market share and represent a direct competitive threat to all three kinds of current account provider already in the market:

  • The larger established UK banks have been accustomed to owning the lion’s share of retail current account business, but their dominant position is being rapidly eroded. For example, Barclays have 7 million active mobile banking users, but Monzo, which received its banking licence in April 2017, already has 1.3 million users, having more than doubled in the past year;
  • Smaller UK banks and building societies are looking at digital services to streamline their business model and attract new customers: however, the bar has been raised a lot higher by the digital challengers;
  • Established international banks looking to build market share in the UK are facing consumers with expectations around user experience that are often more demanding than found in their home markets.

Here are three strategic insights we’ve developed from our market research in order to guide our clients in addressing the challenge and becoming more competitive.

1 – Banking is now a consumer brand battleground.

With an explosion of choice and plenty of options offering rapid app-based onboarding, the bank account has now been pulled into the mainstream of consumer marketing. New customers can be attracted to sign up on impulse, making branding and incentives highly influential.

But customers who sign up quickly, perhaps only out of curiosity or chasing perks, need to be given reasons to stick around. Banks and financial services will need to keep customers engaged and aware of the benefits they get from loyalty, since they are getting ever more demanding and more fickle.

How can banks improve? Integrate product design and development with marketing, with a shared aim of understanding customers better, and establish a technology stack that enables you to get new solutions to your customers faster and learn from their feedback.

2 – Banking is not an exclusive brand relationship.

Banking is starting to look less like a lifelong brand choice, and more like consumer products, with quality and perks determining how long people stay loyal. Even in the best cases, consumers aren’t going to view all their money matters as naturally exclusive to one “main” bank any more.

Empowered by plenty of new options, people are picking and choosing the best they can get out of a range of financial services, including non-bank fintechs. Digital specialists are offering focused customer experience improvements in a whole range of areas where customers traditionally went to their bank, e.g. mortgages, savings, and flexible investments.

For the retail banking user, it’s getting easier to take a modular approach, and there are more advantages to flexibility than there are to exclusivity.

What strategy should banks adopt? Don’t design features and services on the assumption that you are the customer’s “main bank” where you own all their mind space. Accelerate efforts to use open banking APIs proactively to offer high-quality integrations. Look at the fintech ecosystem as an opportunity to enrich customers’ experience with the bank.

It seems paradoxical, but the more a bank tries to hold on to its customers in a closed experience, the less loyal they will become, and the opposite is true. Customers will appreciate a bank that offers a flexible open banking platform in which they can orchestrate their financial life with an individual mix of third party services.

3 – A customer’s oldest bank account is not their “main” bank account if they are not actively using it.

What is a customer’s “main” bank account? It’s not clear any more that this means the same thing to everyone. Traditionally, a “main” current account is defined as where someone gets their salary paid into. But if all their daily transactions are made and tracked through a mobile challenger account, maybe this is better viewed as their “main” account, if we judge by engagement. Engagement is what matters when it comes to having a profitable customer base.

Engagement means data. If a bank’s customer is constantly logging in to check balances, make payments, and calculate savings goals, the bank has a better chance of understanding who they are and what they need. Customer understanding is a prerequisite to delivering a customer-centric service and thus delivering offers and services that are profitable and keep customers loyal.

Competitive strategy shift: Don’t measure customer base by a simplistic count of how many accounts are open. Consider how actively the accounts are being used. Measure growth and retention of banking customers by frequency and quality of engagement with mobile and digital services.

Your digital banking platform should enable you to look at this using anonymous aggregated analytics, and peer group benchmarking so you can personalise notifications and offers based on users’ financial means and lifestyle.

Building a competitive strategy on an open banking platform

At CREALOGIX, our clients partner with us in order to gain an edge in the increasingly competitive consumer space of digital banking:

  • Keep existing clients loyal by providing the digital user experience they expect.
  • Match the competitive attraction of new challenger / fintech services by bringing features to market quickly and effectively matched to individuals’ lifestyles and preferences.
  • Lead the market by establishing a platform on which you continuously bring to market forward-thinking and creative solutions centred on customers’ needs.

To find out more about how CREALOGIX creates digital leaders in retail banking, visit and contact us to set up a call.

Related posts