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How traditional players can close the gap on challenger banks

Earlier this year, Starling Bank and Monzo became the top two banks in terms of customer satisfaction in the UK, knocking incumbent First Direct from the number one spot[1]. Interestingly, this news coincided with a decline in interest in app-only start-up banks, with lack of trust being one of the key deterrents. In fact, trust in banks holding and maintaining privacy and security of personal information has increased from 31% globally in H1 to 42% in H2, while trust in new digital banks and financial service providers has declined, according to RFi Group’s latest half-yearly “Global Digital Banking Report”[2].

This suggests that for early adopters, digital-only banks have a high customer satisfaction. However, these new kids on the block are having a harder time convincing the rest of the public to switch from more traditional established banks brand, which have developed long-standing relationships and trust with their consumers.

TSB’s recent[3] online banking chaos, which was preceded by a failed switch between IT platforms, is a good example of the severe reputational damage that negative customer experience in the digital landscape can have on a bank. In some cases, it can take years to recover and rebuild trust with customers. 

Despite TSB’s recent issue, on the whole traditional banks are starting to close the gap on the digital disruptors. However, in order for these incumbent banks to stay ahead of the game, it’s important to adhere to four key pillars where customers are concerned: trust, digitalisation, collaboration and personalisation.

Leverage the power of trust 

In recent years, as more and more challenger banks have entered the market, trust and security has become a vital currency for the traditional banking player due to their perceived reliability with regards to private data protection. This sits against the backdrop of several high-profile attacks within the last few years, most notably HSBC in 2016[4]. Whilst it was targeted, the defences that it had in place were sufficient to guard against a data breach. So, the bank was actually able to use this attack to reinforce trust amongst its customers as it successfully protected their data. 

Attacks such as this are only on the rise and the culprits are becoming ever more brazen in targeting high-profile brands. A recent study showed that during the first half of 2017, data breaches across all companies resulted in over 1.9 billion records leaked globally. This is a dramatic increase compared to the 721 million records leaked during the previous six months[5]. Meanwhile, the average data breach cost to a UK organisation, across all sectors, is estimated at £2.48m, equivalent to £98 per impacted individual[6]. The key is for companies to invest in the most robust security, so they are armed and ready should a hacker strike.

So, whilst traditional financial institutions have so far managed to keep things at bay, they can’t afford to be complacent. In today’s competitive banking landscape, it has quickly become a necessity to use trust to differentiate themselves to customers.

Improved digital banking offering

As digital usage in banking around the globe continues to grow[7], the overall digital banking experience is set to continue to play a more important role in influencing customers’ decision making when choosing a bank. In fact, our global research into the Mass Affluent consumer found that 81 per cent used mobile apps to manage their finances, and almost two thirds (63 per cent) made digital payments whenever possible.

Traditional players need to cater for the new breed of consumers who expect a seamless, simple and engaging digital experience that’s ‘always on’. HSBC has successfully embraced this shift, with the launch of its Connected Money app[8], which allows customers to easily access their account information from multiple providers within one central hub. One of the first of the established banks to market with an ‘Open Bank’ app, it is likely HSBC’s competitors will follow suit. This is one of the first tangible outcomes of the European Commission’s PSD2 legislation that is expected to have a positive impact on customer experience. In the long term, the use of APIs and AI tools such as robo-advisors, more intelligent automation, and advanced analytics will help banks to attract and retain customers. However, unless incumbent banks continue to refine their digital banking experience, they risk being left behind. 

Embrace collaboration 

Over the last couple of years, the number of fintech start-ups has increased from a few to a few hundred, covering every aspect of the financial sector. New entrants are using technology to deliver simple processes in new, improved and more efficient ways.

Those financial institutions that are embracing the disruptors by forging partnerships with them will undeniably reap the benefits. This strategy will allow them to sharpen operational efficiency and respond to customer demands for more innovative services. The aforementioned HSBC app was born out of a partnership with ‘Bud’, a UK fintech, demonstrating the benefits to all parties. However, even with collaboration, incumbents still face challenges with legacy IT architecture, operational silos and an outdated leadership culture. To succeed, traditional banks will need to move quickly to embrace a significantly different future.

Personalisation, flexibility and choice

In addition to the basics of security, speed and customer experience, many consumers want the entire banking experience to better respond to their individual needs. In an era where customers are increasingly choice-rich and time-poor, an off-target offer is more likely to drive customers away than increase brand loyalty.  Ultimately, to appeal to the new breed of customer, traditional banks need to create personal connections with their customers.

The retail landscape is already making some great headway in this space. To get to know its customers better and enhance their relationship with the brand, menswear brand Hackett created an invitation-only experiential programme, offering truly unique Hackett experiences, rewards and benefits. The staff collected minimal personal details, as well as data such as clothing sizes, helping to improve understanding of their customers through the delivery of an enhanced experience.

Banks, unlike retailers however, have always had access to rich customer data. More often than not, they fail to reap the maximum benefit offered from this. Using advanced analytics, they could gain additional insight in to the behaviour and preferences of their customers. By deep diving into this data, banks can quickly build up a mind-map of their customers. This concerted awareness puts an end to the guessing game in relation to what financial products customers are interested in or likely to purchase next. This allows banks to tailor marketing collateral, ensuring that the right message is delivered at right time for that particular individual, helping to cement customer loyalty in the long run.

Final thoughts

Trust remains a vital currency between banks and their customers, but recent events surrounding TSB have reminded us how easily it can be shattered and how difficult it can often be to rebuild. However, demonstrating dedication to providing ‘on the go’ services to customers by investing in digital strategy and development of the latest apps can instil confidence in consumers.

With the onslaught of new entrants to the market, which inevitably redefines a bank’s role in a consumer’s life, it is essential for traditional banks to create a strategic partnership roadmap, to ensure banks get the most out of these collaborations, both for themselves and their customers. 

These banks need to utilise every resource they can to understand the individual needs of their customer, showing their commitment to remaining relevant and in turn, driving greater satisfaction, paving the way for a long and loyal marriage between bank and customer.

[1] Smart Money People's 'Best British Bank' Awards, 1st March




[5] Gemalto Breach Level Index

[6] Ponemon Institute - 2017 Cost of Data Breach Study








Comments: (1)

Ambrish Parmar
Blog group founder
Ambrish Parmar - Thought leader and Start-up Advisor - London 17 July, 2018, 20:04Be the first to give this comment the thumbs up 0 likes

Hi Mark,

Thank you for posting - Incumbents have the might and customer base to become the distruptors. Interesting few years ahead. Ambrish

Mark Jackson

Mark Jackson

Managing Director - Product & Capabilities

Valuedynamx - a Collinson Company

Member since

05 Oct 2017


London, Boston

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