How Challenger Banks are Accelerating Digital Transformation Across the Financial Sectors

Capitalising on evolving expectations of how services and processes are delivered in the digital age, challenger banks have earned people’s trust by pioneering a radically customer-centric approach to finance. Here, Grant Brown, Managing Director of Data Management at Experian, looks at the role quality data plays in helping traditional banks deliver successful digital transformation projects to continue to attract the new younger consumer.

From the moment they entered the market, challenger banks have been at the forefront of technology and innovation, rapidly scaling products to meet customers’ banking needs – winning them over by demystifying the complexities surrounding financial products and talking to them on their terms.

Traditional banks, in response to these new entrants to the market, have embarked on their own digital transformation projects, designed to further improve the efficiency and quality of their services and put power in the hands of the consumer.

Giving customers a new way to bank

By tackling some of the most irritating money management gripes, leading challenger bank Monzo established itself as a go-to bank for young professional. Its slick app interface and nifty features appeal to Millennial lifestyles in particular, and it wasn’t long before similar innovations followed from the likes of N26, Revolut and Starling Bank.

Elsewhere, brands like Nutmeg, Atom Bank and Wealthsimple have made names for themselves by supporting those looking to invest, while Tide and Anna are helping entrepreneurs manage their company banking with similar ease to the consumer challenger brands.

 How are traditional banks reacting?

The rise of new banks like Monzo has, unsurprisingly, forced traditional retail banks to consider how they present and deliver their services.

There is no doubt that challengers are providing consumers with an abundance of choice, which can only be a good thing, as it is putting pressure on the bigger banks to ensure customer experiences are at the centre of their digital transformation projects. Indeed, in a recent Experian report[1], we found that of all businesses undertaking a digital transformation project in the UK, almost 80% wanted to improve the user and customer experience.

The most successful FinTech features have been implemented relatively quickly, such as freezing a debit card via an app and instant balance updates when using contactless.

However, one of the biggest challenges traditional banks face, and one that is shared with many other companies undertaking digital transformation, are the legacy systems currently in place. We found that 36% of businesses ranked this as the biggest obstacle to change, and with millions of customers accessing banking services on a daily basis, ensuring that there is no disruption is a vital consideration when updating systems and adding new features.


Whatever its size or maturity, every bank depends on the quality of its data-sets. It doesn’t matter how innovative the tools are, if the data that powers them is incomplete, out-of-date or non-compliant, they are almost certainly doomed to fail. According to our study, as many as 70% of businesses see poor quality data as a barrier to digital transformation.

Addressing data accuracy issues is even more important in a world where AI is leveraged to speed up mortgage and loan approvals, while robo-advisors influence consumer decision-making.

The ease and speed at which these applications can deliver traditionally time-consuming services is remarkable – but it is the responsibility of all banks to put safeguards in place to ensure the right outcome. Of course, in a sector where data protection and security are paramount, this also means compliance with GDPR and FCA standards.

Unlike established banks, which have amassed vast quantities of data over the years, the new players will be more reliant on external sources of data to inform decision-making. It is therefore incumbent on them to use trusted suppliers, who obtain, store and cleanse data in line with the relevant legislation.

Accessing high-quality data will enable these new brands to play established brands at their own game, enabling them to grow their market share over the coming years.

Future forecasting

 Even before challenger banks rose to their current levels of popularity, the number of banks on UK high streets were declining. Now, they are disappearing from UK high streets at a rate of up to 60 branches a month.[2]

That is not to say that online banking has rendered physical banks redundant, since many customers still like the reassurance of face-to-face contact, particularly for more complex services – an area completely dominated by the larger traditional banks.

It is here where the challenger banks will need to come up with innovative solutions to target these customers. While they are unlikely to open multiple branches, they may choose to operate specialist-led boutique banks in key locations. However, it could be that the digitally-savvy Gen-Z is the first customer group to feel comfortable choosing banks with no physical presence – as long as the services provided meet their needs and are underpinned by a commitment to data integrity.


For more analysis on these figures, download the most recent DataIQ and Experian research report



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