Will covid-19 end the dominance of the big four?

By Campbell Shaw, Head of Bank Partnerships, Cardlytics

Across the country, we are readjusting to refreshed restrictions on our daily lives, as we continue to navigate the seemingly unnavigable waters of the coronavirus pandemic.

For all of us, the pandemic has made life anything but ‘normal’, and with social distancing here to stay, it will remain so for a long time yet. These paradigm shifts have impacted every aspect of life, including how we bank.

Focus is already turning to the role the big banks are playing through the pandemic, with experts fearing the economic downturn will only cement the position of the ‘big four’ traditional players.

But has the pandemic shaken the dominance of the big banks? Or has it simply confirmed their position?

Turning to tech

There’s no doubt that the pandemic has caused the big players to be challenged like never before on tech.

Classically slower to adapt to developments in the market, increased demand for online services and contactless payment systems have turbocharged the big banks’ need to act like a challenger.

And they have, agilely adapting to this new normal by updating systems and services to ensure customers’ safety and financial security come first.

Scale is staying power

In these new times, the power and influence of the big players has also been proven.

The big four have provided the lion’s share of the government-backed loans designed to help small and medium-sized businesses through the pandemic. It has also been the big four offering the majority of payment holidays for customers on their mortgages, debt and credit cards.

However, it’s important to note that their power to retain customers goes much deeper than their market share.

Our switching study, which looked at the reasons behind customer switching, found that even before the pandemic, despite nearly half (48%) of UK adults admitting they know they aren’t getting the best deal with their current bank, half have never switched their current account.

That’s often because of the value they can provide to their customers, through personalized service, offers and rewards that keeps customers engaged and invested in them. As brands increasingly look to

Focus on finances

As the world becomes a more financially insecure place, due to COVID-19, there’s been a marked shift towards more attention on finances, which has affected not only the business functions of banks but has impacted banking relationships with customers at their core.

From deals to savings, customers now more than ever are re-evaluating how they bank, and how they manage their money.

The impact on the big four is more pressure than ever to keep up with the best interest rates and deals. That can be difficult for a big, and often slower moving, organisation and could be a stumbling block for them in the months to come.

However, on the plus side, the big four can lean into their sophisticated loyalty schemes, using offers and deals from partner brands to demonstrate value to customers and build up their loyalty.

Engaging with purpose

The pandemic has seen many banks acting with a renewed sense of purpose. Banking has had to be more adaptable than ever before – fitting the needs of those who may be feeling financial stress or dealing with unprecedented challenges.

And showing a little heart can go a long way when it comes to increasing customer loyalty and boosting a bank’s reputation.

Over the last months, traditional banks have been quick to adapt their products and services, in response to the demands and challenges their customers have been face.

No doubt, continuing to build more meaningful, supportive and engaging customer relationships, whether it is online or on the newly reopened high-street, will be critical to banks’ dominance as we look to the future.

Bring on the challengers

However, with their meteoric rise ahead of lockdown, we must keep an eye on the challengers, who still have the potential to knock traditional players off their pedestal.

We found that more than three million people in the UK opened a current account with a new bank last year. Our research found that traditional banks made up well over half (69%) of the accounts UK adults switched from, while newer digital challenger banks such as Monzo, Starling Bank and Revolut made up 25% of current accounts switched to. And these fast moving, fast growing challengers may see further growth if traditional banks are stifled by the declining high-street.

What’s more, the high street could yet prove to be the Achilles heel of the bigger players, as shifting budgets and increasing overheads in the context of a more online banking experience could see more big players struggle with their physical presence, making way for the digital challengers to thrive.

So, while the dominant players may have the lead, they should still keep an eye on the challengers as we look ahead to the next, uncertain, six months.