A changing market

The UK financial services industry is changing. Research suggests it is the most disrupted banking market in the world with regulation changes encouraging competition from the so called ‘challenger’ banks like Monzo, Revolut and Starling. 15% of adults in the UK now have a mobile-only bank account, rising to 26% among 18-21 year olds (Source: Crealogix).

Clearly the fintech challengers are doing something right. However, less than 20% of challenger bank account holders use this as their primary account (Source: Forbes). So currently there is a slightly fraught feeling of co-existence with traditional banks pedalling as fast as they can to develop tech led new offerings while the challengers continue to gain broader customer bases but struggle to add depth to their relationships.

Generational needs

Favourable regulation is just one of the theories commentators have put forward to explain the emergence of challenger banks in the UK. Decreased trust in mainstream institutions following the financial crisis is another.

But we believe there is something deeper at play. Our work with clients such as PayPal and Visa in recent years has revealed a shift in people’s behaviours and attitudes towards their finances. People are now talking more openly about money, particularly as younger generations are increasingly concerned about their financial future. A lack of savings, inability to get on the property ladder and historic levels of student debt are frequently cited as the biggest issues facing young people today. To address these concerns, finances are being discussed more openly and figures have emerged to champion our monetary interests (think Martin Lewis). The feature led, money management approach of the challengers is offering reassurance, control and arguably a vocabulary for younger people to articulate their concerns.

Our perspective is that this represents a fundamental change to the emotional needs and values of people in the UK. In a now constantly changing world with almost infinite available information people are increasingly reliant on quick, emotion led decisions when it comes to their interaction with brands and products. Our recently launched LENS research into emotional needs and values reveals a growing generational divide which has major implications for brands and how they connect with their audience. The challenger banks are clearly meeting some of the needs which traditional institutions leave wanting for younger people.

Meaning for brands & marketers

The traditional banks have reacted. Most notably through innovation with HSBC reportedly setting up a mobile only subsidiary under a separate brand and RBS claiming 6 such banks in the pipeline (Source: Forbes). But as well as creating like for like ‘new’ banks, the market leaders are also upgrading their existing offering to be more in line with customer expectations. This is something which marketers have started to seize on, as seen in Barclays recent campaign promoting their in-app card locking and spend projection features. Given the resources the big banks have at their disposal, they should be doing even more to show off their new wares.

Implications for the industry

For now it looks as if the challengers are a force for positive change, driving up standards across the industry to create modern, accessible financial services for all.

But the fact remains that however little trust we have in traditional financial institutions, 80% of challenger users still have a ‘main’ bank account. Neither the challengers nor the traditional banks are likely to settle for this equilibrium.

The established banks should look for strategic partnerships with the young upstarts, identifying the needs they are aren’t serving and filling the gaps with what partners can offer. Innovating their own products will get them some way to addressing the balance but they lack the agility to effect real change in a short space of time.

Challengers should look to develop their offering, identifying the barriers to ‘full’ usage of their accounts and develop products or messaging to address these.

3 actions financial services brands should take

1) Identify the emotional needs and values which influence decision making among your customers and prospective customers

2) Understand where your current offering meets those needs and where it does not. This should be in terms of product, experience and communications

3) Develop products and a positioning which better aligns with the needs of target customers or seek strategic partnerships with other businesses to facilitate this