Zehra Chudry is Head of Content for PayExpo Europe 2016, part of the Payments World Series

Zehra Chudry
Zehra Chudry

Observes  Zehra Chudry, organiser of the “Challengers v Legacy banks” debate at PayExpo Europe 2016

The challenger banks who are challenging the traditional high street names are themselves facing an enormous challenge if they are to disrupt the banking market significantly; building consumer trust.

They must not only offer powerfully attractive alternatives and improvements, they must also convince consumers they can be trusted if they are going to drive significant numbers of customers to change banks.

They may be offering far better interest rates and lower bank charges, or easy to use online services, reliable technology and far better customer service. But despite widespread and often deep dissatisfaction and distrust, very few UK customers switch banks each year.


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In fact, according to the latest figures from BACS, significantly fewer people chose to move their personal current account (PCAs) in the last 12 months. One million people switched their current account suppliers in the year to October, 11 per cent less than the previous year, even though several banks offered cash incentives of up to £150 to encourage switching.

As, according to the Competition and Markets Authority (CMA)’s Retail Banking Market Investigation in 2015, there are more than 68 million active PCAs in the UK, one million people (3 per cent) changing suppliers in a year seems a relatively small proportion. By contrast, Mintel reports that a quarter of households now change energy supplier each year.

Encouraging for the new banks is news that those who switch usually move their current accounts away from Barclays, NatWest/ RBS, Lloyds and HSBC. However the main beneficiaries are banks such as Santander, Nationwide and Halifax, hardly new names on the high street or the market, with some moving to new banks such as Metro, Fidor, Atom, Starling, Monese, Mondo, Simple, Osper, Hello or Tesco.

Building Trust

Trust is a core issue in the banking sector – and theoretically, a potential opportunity for new banks. It is at a very low level; according to a PwC survey in 2014, only 32 per cent of consumers trust retail banks. However a measure of the challenge that smaller, newer banks face is that a recent YouGov poll showed that only 22 per cent of consumers trust them.

There is encouragement for them in research by Accenture in 2014 showing that a quarter of UK consumers are willing to use digital banks that are accessible only through laptops and mobile devices, to banking with suppliers that have no branches or call centres.

Encouragement comes from research by Fiserv which shows that 80 per cent of Britons will trust a new bank if it has good technology and 56 per cent said that a new bank would have an advantage over competitors if its IT was very reliable.

Young people also offer good prospects for the challenger banks. While most young people (59 per cent) still choose the same bank as their parents for their first account, changing banking technology may well drive the Millennials to look elsewhere and favour newer digital banks. 78 per cent of Millennials want mobile options when picking a bank, according to BancVue, while FindABetterBank reports that Millennials say they are less tied to banks with branches.

Asking industry experts who are working with PayExpo Europe – “What must change if the new banks are to take a significant market share?” they advise that they must:

  • maintain a clear, big difference; – much better interest rates, lower charges, more personalised service and experience, online technology – and ensure that millions of consumers are aware of what they offer.
  • build trust in their brands, especially in security and technology
  • generate extensive positive ‘word of mouth’ endorsement to build trust. According to YouGov, 68 per cent of consumers, positive comments from friends and colleagues are very effective in building trust, whereas only 17 per cent were convinced by price comparison websites
  • continue to innovate to make banking easier and more simple, and offer a much better, more interesting customer experience using techniques such as, for instance, gamification
  • provide services relevant to the needs of customers, including niche groups
  • highlight the cost benefits of changing. The CMA review says by switching to the cheapest current account, on average customers would save £70 a year, some up to £240 a year.
  • keep ahead of the traditional banks who, although beset with cumbersome legacy systems, are also innovating – Barclays was the first to introduce personal video banking last year.
  • encourage the Government to invest more in its campaign and service to help consumers believe that the process of switching bank is safe and easy. According to the CMA, fewer than 50 per cent believe the current account switching service( CASS) would work without errors
  • monitor markets such as energy to see how new suppliers make inroads..

It is a debate that will continue, especially when “Challengers v Legacy Banks” is discussed during the Conference at PayExpo Europe in London on 7 June.


Zehra Chudry is Head of Content for PayExpo Europe 2016, part of the Payments World Series