Competition fierce in digital race between challengers and incumbents
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If challenger and traditional banks are in a race to victory, they’re pretty much neck and neck, according to industry specialists. Bill Lumley reports.
A survey published this month by identity verification specialist IDnow suggests that 64% of Britons believe digital processes such as remote account opening, online banking options, or an easy-to-use app, are either important or extremely important when choosing their bank.
Covid-19 drove much of the demand for digital banking. Consumers being unable to access their bank was a big driver for pushing many financial services organisations to provide more digital processes, according to IDnow financial services sales director Mike Kiely.
Sudeepto Mukherjee, head of financial services at digital consultancy Publicis Sapient, goes further still, saying digital is now the norm. “It's very clear that it's no longer just cost or Covid. It's what people expect,” he says.
Many fintechs are vastly more agile than traditional banks and are ready to fill this space, according to Mr Kiely. At the same time, he says, there is a great deal of activity by banks in improving their digital processes. “Fintechs are more nimble, but a majority of the UK population still want to use a traditional bank,” he says.
“I think this is because existing banks have that trust premium from being a well-known brand. While it’s an opportunity for traditional banks, they've got a bit of catching up to do, but there's also a lot of opportunity there for them,” adds Mr Kiely.
Cyber crime concerns
The IDnow survey shows that fintechs are trying to build trust in consumers in an effort to alleviate the concerns that many consumers have regarding fraud and cyber crime.
Sara Costantini, regional director for the UK and Ireland at open banking fintech CRIF, says: “To really cement trust, traditional banks and nimbler fintechs need to work hand-in-hand, partnering to offer first rate digital technologies in areas like open banking, while maintaining a focus on combatting fraud and cyber crime to further enhance trust in the sector.”
traditional banks have got a bit of catching up to do, but there's also a lot of opportunity
Jonny Williams, partner at international law firm Womble Bond Dickinson, says that some consumers will have welcomed the push to digital banking by Covid, but others less so. “The regulatory focus on the financial crime prevention risks, particularly the money laundering risks, of non-face-to-face interaction is not new,” he says.
“The pandemic made it a necessity to have safe methods of opening and maintaining accounts remotely which were accepted by the regulator, and the FCA guidance issued during the pandemic gave banks some new tools and some new confidence,” he adds.
Mr Williams explains that an FCA review had noted serious shortcomings by challenger banks in their onboarding processes, but “it's still clear that while a sizeable percentage of consumers are worried about fraud and cyber crime, the trend is still towards opening digital accounts”.
Legacy systems
Amit Dua, president of pricing software company SunTec, says the bugbear for large banks is their legacy systems. “Often we've found that large banks put up a slick front end on the internet or a sexy app. But if the processes at the back end are not digitised properly, as the report shows, then you cannot deliver a frictionless customer experience.”
Mr Dua says the survey validates the perception that fintechs offer more convenience when it comes to digital banking. “Most of these are mobile-only, whereas in the incumbent, a bunch of banks do not even offer account opening through mobile,” he says.
“If you look at the incumbents, they not only have to provide this for new bank customers, but they also have to provide this to existing customers whose data is spread across multiple systems [...] and they recognise that they have to fundamentally change their data access and systems so that they can facilitate this,” adds Mr Dua.
Rohit Bhosale, digital banking specialist at IT service management company Persistent Systems, says: “The banking landscape is facing a radical shake-up. Unlike larger banks, which can’t cope with the rapid pace of change or launch new offerings overnight, challenger banks are changing the game.” He explains that challenger banks are able to set themselves apart by targeting niche groups of customers and rolling out products or services in an agile way.
Tackling fraud
The financial services ecosystem needs to implement better processes for tackling fraud and raising awareness of the strict controls already in place in order to inform customers and help them protect their accounts and identity, according to John Wilkinson, CEO of anti-mobile fraud company TMT Analysis.
“Customers can take steps to protect themselves, but financial services providers also have an important role to play,” he says. “To stay one step ahead of fraudsters, they need to continue upgrading security measures, provide more information on how they are combatting fraud, as well as offer more guidance to consumers on how they can protect themselves.”
Philipp Buschmann, CEO and co-founder of fintech start-up AAZZUR, says it is not surprising a growing number of people have been onboarded to digital banking solutions, which are improving and becoming more bespoke. They offer more features and they are better to travel with, he says. “Of course, they are still not [used as] the primary account, but even that seems to be changing.”
