Our lives have changed tremendously in the last two decades making ‘life admin’ much easier, more pleasant, and thankfully, less of a chore. The most obvious case in point is the banking industry. Long gone are the days of queueing in branches or having to battle with old fashioned IVR systems. The Digital Boom has certainly reinvented how and when we buy Financial Services products and given us choice beyond the well-known and trusted incumbent players.
In the 00s the well-known high street banks, such as Barclays, HSBC, Lloyds, and RBS initiated the charge by embracing the digital age. They improved the customer experience significantly with online and app-based banking, now enhanced with security features like face and voice recognition. Notably, the building societies with scale and budget like Nationwide have also made a big effort capitalise on modern technology. All of them now offer us a variety of savings, investments, mortgage and credit card products, quite literally at our fingertips.
Following the financial crisis, bankers became the face of ‘bad capitalism’, and a wave of bad publicity - scandals over hidden charges, and the mis-selling of products (like the PPI scandal) - all combined, eroding consumer trust in high street banks. At the same time, the Financial Services Act 2012 adjusted regulations which had previously barred new banks from entering the market. The challenger banking industry was born. This new wave of start-up banks were characterised by their use of modern financial technology practices; embracing innovation and digital in a way the ‘Big Four’ simply couldn’t do.
Sometime in the 2010s, the words Challenger Banking, FinTech and start-ups became part of the public consciousness. Consumers debated the benefits and negatives of banks such as Atom, Starling, Monzo and Revolut who offer retail accounts, whilst others like Aldermore and Shawbrook promote more sophisticated business lending, invoice finance type products.
It would be remiss to ignore the many Foreign Exchange platforms like Currency Fair and TransferWise that have totally revolutionised how we transfer cash. We must also recognise the Peer to Peer lending market which was estimated to be worth £6bn+ in 2019 made up of key players like Zopa, Ratesetter and Funding Circle. Many would argue that these are not banks per se, but their use of digital and innovation mark them as part of the Challenger revolutions nonetheless, and many of them have revolutionised their sectors, becoming dominant in a very short space of time. Like many Challenger ‘banks’ they are also coming under increased scrutiny by the regulator for poor liquidity, coupled with high risk products.
During the 2020s, these young and disruptive businesses will need to show they can mature, while retaining their appeal for consumers which they have acquired in the tens of millions collectively. These new players’ twin attractions are their lower fees, coupled with a better customer experience, so it is essential that they maintain those elements. Given the fierce competition, the focus on pricing and curbing cost whilst adhering to strict risk policy, one must ask if the plethora of new players has put an unnecessary pressure on the market and in the long term it will be interesting to see who will have the strategic and competitive edge to survive. That’s a debate for another day. The challenger sector inherently trends towards higher risk business, and with many challenger banks falling under intense scrutiny by the regulator, there is certainly a chance that some will fail to keep up. What remains to be seen will be how the survivors will get through the difficult times ahead.
If you would like to discuss this article further, learn more about The Norman Broadbent Group, or discuss specific people or organisational challenges, please do not hesitate to contact Clare Nash via clare.nash@normanbroadbent.com or on +44(0)7483 015591