How UK Challenger Banks are taking on the High-Street Heavyweights

By Norris Koppel, CEO and Founder atMonese

Challenger banks are becoming a genuine alternative for British consumers as the deals and benefits they are able to offer out-compete the existing banking institutions. Whilst initially they were quite likely a reaction to the UK recession, all signs look to point towards challenger banks being here to stay for the long run.

However, whether challengers are able to offer improved deals, better customer service or most importantly improved security and trust – none is beneficial if there is no customer base. As applies to any business model, a client base needs to be built for a challenger bank to thrive. Money is of course essential to any bank and is a necessity to build the balance sheet and enable banks to lend money, something that cannot be done without an existing client base.

Therefore, to attract new customers, challenge banks must be innovative and offer superior service to the high-street heavyweights in order to attract people to convert.

A key way in which challenger banks are able to innovate at a far quicker rate than their high-street counterparts, is via technology. Technology is at the heart of many challenger bank propositions, which means they are far better suited to continue to innovate and stay ahead of the game. For example, at Monese, we work as a 100% mobile current account provider, which suits the busy lives of our customer base making us much more convenient. Convenience is something we aim to carry throughout our entire offering – our users are able to open a current account in under five minutes with only the need of one form of ID and a selfie.

Whether it’s something as straight-forward as opening a bank account for the first time or moving funds from one account to another, challenger banks are making themselves the obvious choice ahead of the established big players – thanks largely to their technological advancements. We can see the beginning of a change in the high-street banks’ approach – HSBC are embracing the use of facial recognition technology, whilst Santander recently announced plans to launch a digital bank in the UK. However, to begin using technology so heavily in their models, lengthy preparation and care needs to be taken – meaning it is a much larger operation than it is for challenger banks who already have technology at the heart of their operations.

However – regardless of who is making use of advances in technology – there can be severe repercussions when technology goes wrong. Cyber-attacks and issues with customer data are ever present, so any adoption of technological methods should be preceded with very careful checks and caution. It will only take one challenger to cause a customer to lose money due to a data breech for the rest to be labelled as a risk not worth taking.

This is due mostly to the importance of trust in the banking industries. It is essential to the growth and establishment of a bank – and for newcomers it can be particularly difficult to develop. For so many, it is much safer and easier to stay with what you know and can rely on, rather than taking a risk and venturing into a new, unknown bank or account provider.

There are changes in regulation which seems to be working in the favour of challenger banks – granting them the ability to grow and expand. The UK’s open banking standards and the EU’s Revised Payments Services Directive (PSD2), were both rolled out and the start of 2018 and have further enabled challenger bank growth. This demonstrates an eagerness by regulators to encourage the presence of challenger banks, to offer people the best in banking options, whilst also creating competition for the ever-present high street banks.

We are certainly witnessing a new age of banking, and the possibilities for success are undeniable. What we can say without much doubt is that the role of technology, and whether those are able to adopt it successfully, will be a key and deciding factor throughout the next few months and years.

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