Digital banking habits are here to stay – where does this leave the industry?

By Jamie Williams

One third of banking customers are now considering opening an account with a challenger bank. This is according to figures released today by SEC Newgate Research.

There is no doubt that the COVID pandemic has transformed the way we consider and manage our financial lives. With bank branches across the country closing for long periods during national lockdowns, customers of all ages have been forced to bank digitally.

Mobile apps and online banking, used predominantly by millennials, are no longer considered a “plus” or a “nice to have”, but an essential service for all consumers.

In fact, SEC Newgate Research has found that the quality of online and mobile banking tools is the most important factor in one’s decision when choosing who they bank with. The ability to digitally manage your finances is now seen as more important than the economic reward of opening a bank account. A quarter of all respondents selected the quality of online and mobile banking tools ahead of interest rates and low fees.

According to a recent survey by YouGov, international data reveals that over half of consumers will now avoid bank branches in the post-COVID world. A staggering shift in customer behaviour. 

As we all now know, the dramatic shifts in customer behaviour caused by the pandemic have put increased pressure on all industries to accelerate their digitalisation efforts – nowhere is this more evident than in banking.

Since the 2008 crash, traditional banks in the UK have been playing catch up in terms of technology. Whilst fintech companies have sprung up left, right and centre adopting new technologies such as AI, blockchain, cloud and big data to quickly gain a large number of customers, in particular millennials. It is no surprise given the exceptional services on offer, that so many consumers are considering a challenger bank.

The popularity and success of digital banks – both for consumers and businesses - has been enhanced by the pandemic. Tide, the leading digital business financial platform, has recently announced that its membership has doubled in the past 12 months. Due to recent successes, Monzo has also raised more than £170 million during the pandemic alone. In addition, Starling has reached unicorn status last month following a funding round which has sent its valuation to an impressive £1.37 billion.

Due to the success of challenger banks, incumbent banks have been forced to deploy new technologies to reshape businesses and upgrade core systems, reduce operation costs, simplify methods to acquire customers, and most importantly, optimise the customer experience.

With such transformation, banks have also integrated - or built - more open banking ecosystems, transforming into a Banking-as-a-Service platform that connects various fields including travel, transportation, and retail.

With the explosion in demand for digital services, the war between incumbent and challenge banks has never been so fierce. As with any industry competition, innovation is rampant. There is no doubt that those banks – traditional or challenger – that place customers at the heart of their offering are set to thrive.