It’s still a tough time for banks. In recent times, established banks suffered from cashpoint outages, poor customer service and high-profile data breaches. This means challenger banks have a golden opportunity to gain market share. Whilst it is difficult to measure their impact on the financial services market at such an early stage of their development, they are spicing up the market.

The financial services market certainly needs more flavours if customers are to expect better deals from their banks. Mature challenger banks such as Metro Bank, Tesco Bank and Virgin Money have certainly made headway in stealing market share from the ‘Big Banks’.

Metro Bank alone has 655,000 customers, a year-on-year rise of 46%, with deposits rising by 78 % to £5.2 billion.

What Metro Bank has achieved is impressive, but the difficulties in its recent initial public offering (IPO) highlight that investors are still wary of taking a chance on challenger banks.

Atom, Tandem and Mondo are yet to open their doors but are exciting the financial services sector with promises of a sleeker, faster and more personalised way of banking that fits in with a millennium lifestyle.

The established banks still dominate the market, with the UK’s top four holding onto a 77% market share. Challengers certainly need to prove their value to customers that often need to be incentivised to part from old established brands.

Are customers getting a better experience with challenger banks?

Providing excellent customer services is a sore point for established banks. As a recent report claims the UK top four banks are projected to lose £3.7 billion in revenue between 2015 and 2018 due to poor customer experience.

Whilst the pace of technology adoption by these banks has been impressive over the past few years, this has not been without controversy. As Andrew Tyrie, Treasury Committee chairman, stated, the attempted modernisation of financial software at times has led to a complete breakdown of IT services.

Challenger banks are at an advantage due to their brand new systems that easily integrate with software developed for the Internet of Things and mobile applications. Yet, despite having modern systems, this does not automatically lead to modern customer service experiences.

A way challenger banks can take advantage and make the experience more interesting for consumers is to gamify engagements. Banks in Eastern Europe and North America have introduced gaming-esque approaches for customers to deposit money or spend money on certain items and rewarding customers for doing so.

However, a majority of customers get what they expect from these banks but not what they want. Customer dissatisfaction is evident as all of the big four banks failed to make it in the top 100 brands for customer experience in the KMPG Banking Sector Briefing. 

Unifying and integrating multiple customer channels can enable banks to offer a truly personalised service to account holders. Instead, Metro, Virgin and Tesco have copied the strategy of market leaders, providing a generic banking experience.

Branches and online accounts are still disconnected from one another and front-line staff are only able to access basic information about a customer, meaning only a small fraction of the true value of their data is being used.

As data mining capabilities improve, so the financial products on offer should provide customers with custom-built deals on mortgages, new mobile phone offers or student loans to account holders as they need them, perhaps before they even ask.

Is innovative customer experience able to compete against established brands?

Previously, an established brand identity was more important to banks than customer experience, this need not be the case today. The power of established brands is fading in markets such as travel and transport.

Digital disrupters such as Airbnb and Uber are shaking up the market with online, on-demand services. Bank customers can now access comparison sites at a click of a button to check which banks offers the best deals, complies with their ethical standards or what their credit rating is online. Having a recognisable brand will not attract customers if there is a one-star review next to their name.

The banking sector is yet to be hit by a major digital disrupter, but Mondo, Secco and Tandem are all looking to be the new flavour that disrupts this vanilla customer experience. If challenger banks can’t offer anything expect a bit more zest, then customers will go with the trusted institutions, which can offer them the safe standard day to day banking operations.

Challenger banks should fully take advantage of the new innovations in areas such as payments, where their modern IT systems can incorporate efficiently blockchain and open APIs to speed up bank transfer times. This means payments can be made instantly, rather than relying on legacy banking systems to process transfers that could take hours or even days.

The direction the Internet of Things is moving towards should also be seen as an opportunity for challenger banks. In the near future, payments for pizza can be made from a connected car as Visa teams up with Pizza Hut and Accenture to deliver this service.

From sensors that will determine what to buy for the household, to apps that track location and offer deals based on what is in the customer’s vicinity, banks have the opportunity to make use of vast amounts of data and innovations to boost customer experience.

As well as making payments faster, banks need to re-invigorate their customer experience platforms if they hope either to defend against or even become the next digital disrupter. Newer systems give banks the ability to create a diverse new brand and add something new to the customer experience quickly.

Providing customers with personalised deals can only be achieved if the customer experience platform is integrated and data is not siloed. For established banks, implementing a new middle-layer of IT infrastructure reduces the tangled web of banking IT applications and grants access to complete sets of data on a single platform. Front-line staff are empowered to provide great service, regardless of whether the customer reached out to them in branch, online or on social media channels.

Further analysis of this data allows banks to predict their customer’s career or personal life trajectory giving them the ability to offer much more than a standard product.

Properly equipped, challenger banks can be the saviours of customer experience in the financial sector if they are able to use all the data they have on customers. The truth is, future financial products and services need to be tailored to customers.

Customer experience in other sectors provides more and more tools to personalise the buying process and the same will be expected in the banking sector.

Challenger banks need to revolutionise the customer experience along the same lines as other digital disrupters and lead the old guard. If not, customers will continue to go to the tried and trusted option.

Sourced from Max Speur, COO, SunTec