Published Monday 30th March 2020
The way customers interact with businesses has almost entirely changed compared to a decade ago. New technologies and changing lifestyles have altered the expectations consumers have when it comes to how they make purchase decisions.
For businesses to succeed in this new market, they must modernise their approach to match our everyday lives. The retail sector can attest to the perils of not modernising services. Almost every industry has experienced these behavioural changes, with major businesses facing difficulty as a result of an unwillingness to change.
The finance sector is one of the last to experience the full pressure of consumer modernisation. While major banks have been slowly transitioning to digital, startups have now filled the gap, threatening the status quo of an industry largely unchanged for generations.
A New Way of Banking
‘Challenger banks’ as they have been coined have only begun appearing in the market over the last five years or so. Their rise to prominence can be traced alongside the adoption of handheld technologies on which their services rely.
One of the most prominent examples of these companies is Starling Bank. Founded in 2014 and licensed since 2016, it is an all-in-one banking service that is only accessible via a mobile app. Others have since followed, including Monzo (trading since 2017) and Revolut (since 2018).
All of these challenger banks can claim to be successful, boasting millions of customers between them. The appeal of these solutions is that they are moulded from the ground up to suit the modern lifestyle. These apps offer 24/7 banking in simple, easy to understand accounts. They also come with a range of features built-in, such as ways to help people save and budget in real-time.
Starling Bank was voted Best British Bank 2020 at the British Bank Awards, a testament to the appeal of these kinds of services to the modern consumer.
An Outdated Finance System?
The reason these companies are termed ‘challenger banks’ is because of how they look set to disrupt a banking system that has been in place for hundreds of years.
Compare the founding dates for challenger banks – all within the last decade – to those of UK banking’s big four: Barclays (1690), HSBC (1866), Lloyds (1765) and Royal Bank of Scotland (1727). With the revenues of each firm in the tens of billions every year, they could perhaps be forgiven for believing they were too rooted in the financial system to be displaced.
That belief in financial immortality has since been challenged. Consumer expectations and technological developments have seismically shifted the financial sector. As seen in other industries, these historical institutions have been slower to react to the change compared to their new competitors. Challenger banks have since filled the cracks and continue to grow their influence on the sector.
Adding Value Through Technology
The problem for these established banks isn’t necessarily the technology itself. All of the big four now offer mobile banking, 24/7 online services, contactless payments, and more. The problem is more the overall package, especially when it comes to the new, younger banking consumer.
Banks such as Monzo and Starling are known for being incredibly quick and agile for the user. If something goes wrong, the consumer can instantly freeze the account or perform whatever action is necessary. This agility that the modern consumer seeks is slowly becoming part of the big four’s mobile packages. However, to truly catch up to their competitors, a new model might be required.
Challenger banks have succeeded at putting the customer at the front and centre of everything they do, using technology to add value to their standard banking service. To compete on the same footing, established banks will have to reevaluate themselves not as a historic protector of funds but as a service company that continually needs to provide value for its customers.
The financial sector is a useful model for how businesses can benefit from smart investments in technology that provide benefit to both the company and consumer. Here at Expense Reduction Analysts, we’ve worked with businesses across industries, including finance, helping to unlock capital for much-needed investments.
We specialise in corporate cost savings, helping businesses to save money in areas such as professional services, records management and many more. By reducing your expenditure, we can help you to unlock capital that can be used to support business finances or in investments for long-term success. If you’re interested in discovering what our expert team could do for you, why not get in contact with us today?