The battle between challenger and incumbent banks continues

By William Girling
A new report published by banking software company Temenos concludes that no clear victor in the ongoing ‘battle of the banks’ has emerged...

A new report published by banking software company Temenos concludes that no clear victor in the ongoing ‘battle of the banks’ has emerged.

Although the COVID-19 pandemic appears to have caused a significant reprioritisation of incumbent bank focus points, notably digital offerings, it may be an exaggeration to say that challenger banks are gaining the upper hand. 

Information gathered by The Economist Intelligence Unit (EIU), which analysed over 10 million online conversations in public forums discussing personal finance, extracted four salient points:

  • Challenger banks are associated with an exciting sense of consumer empowerment
  • Incumbents are perceived as possessing greater security and privacy protection
  • Digital banks seem to offer customers more innovative products and a better overall experience
  • Traditional banking structures are considered more reliable and trustworthy

Digital transformation: a unique opportunity

The clear divide, then, is one of ‘new’ vs ‘established’; digital native banks clearly have the edge when it comes to customer experience and overall service, yet their historically ‘unproven’ nature means that incumbents remain the safer bet. 

For challenger banks this means that their endurance will ultimately vindicate their business model. For traditional organisations, however, this means that their appeal will likely deteriorate over time if nothing is done to salvage the situation. 

The problem is compounded by an earlier EIU study, which found that only 32% of industry leaders considered improving their customer experience a top priority.

“We see digital technology as a once-in-a-generation opportunity to deliver satisfying and secure customer experiences and generate growth for banks,” said Max Chuard, CEO, Temenos.

“The transformative power of cloud and AI (artificial intelligence) technology gives banks a fighting chance in the campaign for customer relationships, but time is of the essence.”

Focusing on the customer

Although the competition between the two factions continues, it is clear that the side which configures the optimal tech-driven and customer-centric approach will ultimately prevail.

The ongoing COVID-19 crisis has handed banking an opportunity to realign its goals with those of its customers, who are experiencing new challenges across multiple aspects of their daily lives. Jason Bates, Co-Founder of Monzo, Starling Bank and 11:FS, believes that accounting for the new normal could also be a deciding factor:

“Innovators are those who understand the ‘brutal realities’ of customers’ daily lives. We never ask customers, ‘what would you like us to build?’ because they are experts at talking about their problems and experience, not product development. 

“Our approach to creating new digital services is to talk to customers about the issues in their daily life and then look at how you can deliver against that,” he said.


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