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Challenger vs. incumbent banks, who is going to win the customer over?

Revolut recently managed to raise $80 million from TSG Consumer Partners while Monzo bank’s losses jumped from £47.2m to £113.8m. CFTE has done research among its employees to see if challenger banks stand a chance to ever replace the incumbent banks so customers use them as their primary account.

According to per bank data covering Q4 2019 from the Current Account Switch Service (CASS), the biggest winner in the run-up to Christmas was Monzo (with 20,843 net switches) followed by Nationwide (14,959), Lloyds (13,243) and Starling Bank (9,247).

In 2019, Monzo also hit a total of 2 million users on its app, growing at over 30,000 account openings a week. However, Monzo has in fact stated in their annual report that only 30% of their active users deposit at least £1,000 per month.

Simon Kent, global head, financial services, AT Kearney, says: “Traditional banks continue to dominate the market, considered more financially stable and trusted by loyal customers and challenger banking customers alike with the biggest and most important transactions, but with many millennials opting for the younger and hungrier competition, the market is set to change dramatically if high street banks fail to act. “

According to Propeller Insights, around 72% of consumers doing the majority of their banking online. However, as seen in Business Insider, 51% of UK consumers still feel that neobanks are a riskier place to store their money as compared to traditional banks. Furthermore, 41% of them will opt to limit the amount of money that they deposit into a digital bank.

CFTE is an education platform from the UK. They decided to see if such a phenomenon takes place in their own company as well by looking at the sort codes provided by our UK employees for their salary deposits.

The findings showed that their UK employees use a wide variety of banks as their primary account. The majority of CFTE’s UK employees still opt for traditional incumbents (55%), such as Barclays, HSBC, NatWest, Nationwide, Lloyds, Santander, First Direct, TSB and Halifax. However, the incumbent banks only won by a minimal margin of 10%.

CFTE came up with the following conclusion: “To catch up to the incumbent banks, challenger banks now need to work on winning the trust of more consumers. It is particularly imperative that challenger banks ensure that their digital infrastructure —given that they do not have brick and mortar branches like incumbents— are well-secured and free from data breaches.”

“Incidents like the service outages by Chime in 2019 will only further erode the trust that consumers have in neobanks and should be avoided. Furthermore, challenger banks can also look into collaborations with incumbent banks in order to build greater credibility for themselves.”

Check the full report by CFTE here: Can challenger banks ever replace incumbent banks as our primary bank account?

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Jan Cerny
Jan is an innovation enthusiast and Fintech news reporter. He specializes in news distribution, social media, and content analysis.

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