Nigel Frith, vice president of financial services at AskTraders, discusses how challenger banks have revolutionised the banking industry and the opportunities more traditional banks can explore as they aim to extend their digital offerings. 

As the high street has evolved in order to meet the changing needs of consumers, retailers have been left with no option other than to reinvent themselves. The banking industry certainly hasn’t been immune to these shifting trends either and as a result, over the last few years traditional banks have been forced to adapt and change the way they operate. While their face-to-face services still remain a crucial string to their bow, banks have had to invest heavily in their digital offerings in order to compete with increasingly popular digital-first providers. So, why are these challenger banks such as Monzo and Starling so attractive to customers and how have the big players in the industry risen to this digital challenge?

A focus on challenger banks

With their chic apps and personalised offerings, new banks can’t be found on the high street but are instead on your mobile phone. Their customer-centric approach has simplified banking by providing users with features which make daily tasks that little bit easier. From being able to split the cost of meals with friends to keeping track of monthly outgoings, these app-based services have really hit the spot in the eyes of many.

With more than four million customers, Monzo is perhaps the most well-known challenger bank. It started out in 2015 as a prepaid card that could be topped up via its app before transforming into a sole banking brand in 2017. It offers all of the usual current account services regular banks provide but also enables customers to manage their money in an effective and efficient manner. The ease at which you can navigate through the app is certainly a big draw for digital-savvy youngsters who are able to quickly transfer money to their friends and set monthly budgets.

In recent years it has continued to broaden its services such as by adopting a ‘get paid early’ feature which allows users to be paid their salary or student loan a day early. By embracing a channel-based communication model, Monzo has also been able to respond to incidents such as outages in a typically effective fashion. Customers can report any issues using a chat service on the app and they have the ability to freeze a card from their phone should they lose it.

With their chic apps and personalised offerings, new banks can’t be found on the high street but are instead on your mobile phone.

Another major benefit of banking with Monzo and many of its other app-based competitors is that it doesn’t have any foreign transaction fees for spending. It has therefore become a highly attractive option with regular travellers and holidaymakers alike.

How traditional banks have risen to the challenge

Although recent analysis of bank branch data has revealed that (if the current rate of closures was to be maintained) there would be no high street banks left by April 2032, there is clearly still a demand for in-person banking. Many people still feel more comfortable going into a bank to pay-in cheques while others are reliant on the financial advice they can access in-store. Clearly there remains a need for traditional banks, such as the big four in the UK - Barclays, Lloyds Banking Group, HSBC and RBS - to evolve their offerings.

In recent years, therefore, these banks have invested heavily in their online and mobile banking services in a bid to compete with digital-first providers like Monzo. This has included providing customers with perks such as being able to pay for purchases using virtual cards on their apps and providing them with the ability to cash-in cheques from the comfort of their own homes.

Leading the way has been Barclays who in 2017 invested £4,148 million into their digital platforms. Now, more than 90% of Barclays’ transactions take place over mobile devices, emphasising the effective nature of their transition to a more digitally-focused way of operating. In December 2018, Barclays also designed a feature which allowed customers to turn off payments towards certain websites should they feel they are unable to curb their spending. More recently, it has taken things a step further by enabling users to view the accounts they hold with rival banks on their platforms - an option which would have been unthinkable a decade ago.


Key to ensuring customers have felt comfortable transitioning to these digital services has been the commitment banks have shown towards tackling cyber crime. This has seen the banking industry team up with the government, police and other regulators in recent years. Initiatives have been set up to not only raise awareness of the threat scammers pose but to also reassure customers of the stringent measures banks have in place to protect their personal data. Last year, UK banking security systems prevented fraud on an estimated £1.4 billion scale, demonstrating the importance of their investment into tackling cyber crime.

The future

With banks now constantly innovating in a bid to steal a march on their competitors, it is likely we’ll continue to see big changes taking place within the industry over the coming years. One thing that is clear though is that there will be a continued drive by providers to further improve and simplify the customer experience. Although further high street branch closures are inevitable, banks are working hard to maintain their in-person services for those who prefer to operate in this capacity also. While digital banking isn’t for everyone, the ease and efficiency at which millions of people can now complete financial tasks has left a lasting impression on many.