The battle between challenger and incumbent banks continues
Although the COVID-19 pandemic appears to have caused a significant reprioritisation of incumbent bank focus points, notably , it may be an exaggeration to say that challenger banks are gaining the upper hand.
- 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.
“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 , and , 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.
CMA warns UK and Irish banks over bank transaction histories
Specifically, the CMA named prominent challenger bank Monzo, the Bank of Ireland, NatWest Group, and Virgin Money as not providing customers with records of their bank transactions within the maximum outlined timescale (40 days after closing the account).
Such information is crucial not only for ensuring a smooth transition from one bank to another, but also to provide a foundation for credit applications in the future.
According to the Retail Banking Market Investigation Order 2017, 95% of bank and building society customers should receive their bank transaction histories in at least 10 days.
Reputation: A bank’s greatest asset?
Of the 150,000 customers affected, Monzo was by far the main contributor - 143,000 (95.3%) - with the other three dividing the remaining 7,000.
The extent to which the magnitude of its mistake is attributable to being a digital-only bank is not clear, although it may give some customers pause for thought. With a superior customer experience being among the bank’s greatest assets, continued reputational damage is something that it cannot afford to sustain.
Although the CMA’s action in this instance has been to issue each bank a warning and order the immediate dispatch of all outstanding information, it has warned that future breaches will carry heavier consequences. Measures could include legally enforceable compliance audits on a yearly basis.
Helping customers get a better deal
Condemning the banks for negligence that could negatively impact customers’ desires to take out loans or mortgages, Adam Land, CMA Senior Director of Remedies Business and Financial Analysis, promised that his organisation would remain vigilant to similar behaviour moving forward.
“Banks must comply with all the rules – that includes providing a full transaction history promptly.
“We will be watching closely to make sure these leading names stick to their word and don’t let their customers down again. The Bank of Ireland, Monzo, Natwest Group, and Virgin Money should be in no doubt that the CMA stands ready to take further action if these failures are repeated.
Image source: gov.uk