Modern-day banking has been made easy, thanks to the likes of mobile-first challenger banks. They have designed their apps and offerings to meet their customer’s needs, making sure the way these apps function match the way their customers manage their finances. Their focus on improving the customer experience has led them to outdo the big banks. Estimates have even predicted these non-traditional banking providers in North America and Europe will surpass more than 145 million customers by 2024.

But the question now is, will they? As the attention turns to the challenger banks becoming the major players, the gears are shifting. Not only this, the big banks are catching up too, edging closer to offering the same innovation in products and services, and an equally outstanding customer experience. In the coming year, we might see the gears shift between these banks once and for all – but it could go one of several ways. 

Will the acquisition route work for big banks?

Trust remains an important factor for many when it comes to choosing a banking provider. In their survey, A.T. Kearney found that four-fifths of respondents considered their primary account to be with a traditional bank, whereas only a fifth said a challenger. The same study also found that almost three-quarters of respondents chose to have their salary paid into a traditional bank, signalling the higher level of trust placed in them.

Backed by reputation and credibility, all that the big banks need is the technology and talent to level up the customer experience. We’re already seeing major banks doing this by acquiring small firms and expanding their developer talent. French bank Société Générale, for example, acquired Shine, a challenger bank last year, and another, Boursorama, back in 2015.

But acquisitions may not always work in the bank’s favour. Spanish bank, BBVA, had to close down the challenger bank Simple after acquiring them back in 2014, reminding us that challenger banks are still often operating on trial and error. They aren’t built on the same foundations as traditional banks, so may not always leave customers happy – the platform was reported to have turned off its banking features without warning. So, how else could banks leverage their reputation and credibility and deliver on their customer experience?  

Investing in customer experience 

The other route big banks could take is by investing in their own technology and improving their customer experience so that challengers can’t keep up.

Most people rarely change banking providers, and this is particularly true amongst the older generation. According to finder.com, more than half (57%) of elderly account holders stayed loyal to the same banking provider for their entire lives. That’s why major banks need to deliver the same level of customer service – if not better – online than in-store. As many as 1.4 million high-street bank customers also revealed that they don’t intend to return to a bank branch after the pandemic. This further demonstrates that stepping up user experiences will be vital to retaining existing customers and attract new ones too.

Whether this means improving the onboarding experience or guiding the customer journey as they solve a reported fraud issue, making this as simple as possible will be critical. If not, customers could quickly jump ship to other, more responsive banking providers.

Will challengers continue their winning streak?

In the past year, challenger banks have continued to expand their offerings and grow their customer base. British challenger bank Starling raised £272 million in its latest investment round, with the CEO announcing the money would go towards expansion into Europe and mergers and acquisitions.

Similarly, buy now pay later (BNPL) provider Klarna has been making headlines. From announcing that its open banking solution will be rolled out to eight more countries, making a total of 24, to raising $1 billion in a new funding round, Klarna is catching up to the big players with its strong user base of 18 million customers. To measure up with the major players however, it has to work on convincing its customers that it can be trusted with their money – and won’t end up as the ‘Wonga of the 2020s’.

Trust at the centre of it all

When customers choose their banking providers, whether this be a traditional bank, a digital-first challenger, or even new fintech entrants, it all comes back to one thing: trust. Delivering user experiences that meet the customers’ needs play a major role in this. Customers need to feel that their money is in safe hands, that they can report issues and have them resolved easily, and the banking provider will do everything they can to protect and manage their money.

Today, it’s no longer just about the name and reputation. Instead, it’s the experience that the provider delivers, and if they can meet expectations. In this, trust and user experience are not the pinnacle – now, they’re the bare minimum.