COVID, Trust and the Recalibration of Consumer Banks

Never let a good crisis go to waste. The famous Winston Churchill adage has been apposite for businesses across the board, not least the founders of Monzo, Starling and Atom, who seized on the fallout of the 2008 financial crash to reimagine what banking could look like in the digital age. A decade on, things aren’t so rosy for the challenger banks as they face their own reckoning on the back of an economic downturn.

It’s important to remember just how exciting the challenger banks were. They brought real – and much needed – innovation to personal finance; a digital-first approach offered both a fresh look, a new approach to customer-led products and a more agile user experience. Then coronavirus hit and it exposed some fundamental flaws in the customer experience they offer. The big issue is that none had fully left start-up mode, so they weren’t able to provide either a full suite of banking services or adequate customer support at a time when it was most needed.

Against this backdrop, the pandemic has only served to prise open problems that predate the last 10 months. The front-end experience was, initially, second-to-none and they were able to set up financial products that were tailored to the individual needs of consumers. However, this is an expensive proposition that has resulted in lower margins for those players. In recent years the high street banks have become better at doing what brought the challengers fame: the user experience – and, significantly, they are also better able to offer personalised experiences at scale.

If the challengers aren’t careful, they may find themselves disrupted by those they disrupted.

Trust in times of adversity

It’s not surprising that we seek the comfort of the ‘tried and trusted’ when times are tough.

The established banks have a long heritage and this stands them in good stead in this regard. According to a survey of 2,000 UK consumers by TopLine Comms, consumers trust traditional banks like Nationwide, Barclays and Santander (61.5%) more than they trust the challenger banks (21.5%).

Two main factors account for this. First, as we’ve established, few digital banks offer the range of services that consumers have come to expect. Having immediate access to a detailed run-down of your spending is convenient; not having access to loans, mortgages and overdrafts or human customer service to resolve complex issues is highly problematic.

Second, more than half (54%) of consumers surveyed by Fujitsu said they don’t trust challenger banks with their tech and data. That’s a big obstacle to adoption if your business is digital-first.

Overall, people seem to trust the devil they know; they may not like the high street banks, but they do trust them. Moreover, as recent history has shown, they are more likely to be bailed out in the event of a financial crisis.

The human factor

Mortgage ‘holidays’, furloughs and redundancies – with the world of personal finance evolving in increasingly unexpected and unwanted ways for many, consumers are looking for banking experts to help them navigate a complex journey, whether that’s done remotely or in a physical branch.

More established banks have the infrastructure and deeper pockets to provide human advisers. The digital-first players don’t always have this infrastructure and some rely on chatbots – a technology not sufficiently advanced to handle the complexities of highly charged emotional situations.

The banks that create the perfect blend of human and machine ultimately come out on top – automating the parts of the customer experience that machine learning does best but relying on real people to deliver the customer service.

The end-to-end experience

It seems people use the front-end experience offered by challenger banks as an add-on to the core banking functions provided by high street banks. This is backed by a Finder survey which revealed that people are only depositing on average around £150 per month into their digital bank accounts. Even the UK’s most popular challenger bank, Monzo, reports just a fifth of its customers use its services and nothing else. By comparison, a third of Barclays customers use Barclays’ services exclusively.

Moving forward, it’s possible we’ll see some attrition as well as further waves of consolidation as some of the challengers’ specialist services woven into the offerings of platform players like Visa. On the other hand, some of the most successful challengers will look to take on their high street rivals more directly with differentiated offerings, for example ethical player Triodos Bank capitalising on the consumer tide towards transparency and sustainability.

Trust and breadth of financial services products are a priority. Purpose and transparency are shifting rapidly to the fore. When the digital battle-lines are drawn, it’s not only the front-end user experience that will matter as a differentiator. To be fighting fit, whether it’s a challenger or high street bank, the work on delivering what consumers expect from a bank, front end and back, needs to start now.

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