The challengers have entered the ring, but are they title contenders?
Since the financial crisis of 2008, a lot has been said about consumers not trusting the incumbent banks and moving their custom elsewhere. However, switching rates have remained consistently low, despite the introduction of the Seven Day Switching Service. Is it finally time for the challengers to, well, challenge? Patrick Brusnahan writes
A wealth of neobanks and challengers has been introduced to the UK market in recent years. According to the PRA, 12 banking licences were approved between March and December 2017.
In addition, four more applications were made in that time. In the 2016/2017 financial year, eight applications were approved.
While not everyone has seen the licence as a blessing, CivilisedBank gave its back in 2018, there certainly is a sizable number of new players in the sector.
However, these disruptors could make more of a dent than originally anticipated. Research from Network Research has stated that if these new players focus on just younger generations could lead to a huge opportunity missed.
Key findings include:
- Overall, 7 in 10 are open to trying new brands.
- A third of consumers would consider a disruptor brand in finance.
- A third of Barclays’s customers fall within the top two population segments most open to disruptors, along with over half of John Lewis Finance customers.
- Nearly 3 out of 4 people agree they are happy to manage their finances online, and this only drops slightly to 69% for those aged 65+.
- Households with an annual income of over £55K were key adopters of disruptor brands, with 74% of them using these brands. But the top reason for choosing a disruptor brand is value for money, which isn’t all about price. Convenience and newness also play a role.
Just under half of customers fell within the segments most open to disruptor brands. The segment most attracted to financial disruptors in particular is the ‘Go Getters’, who are the most tech driven and health conscious.
This group has the highest number of 18-24 year olds, but still has 25-44 year olds who are heavy users of disruptor brands. They are most likely to be single and least likely to have kids. Given 25% of this group earns over £55,000 a year, it appears they have more disposable income and are a great target for new tech offers.
Some brands, such as John Lewis Finance, are at a higher risk of disruption – over half of John Lewis’s customers sit in the segments open to disruption.
In addition, wealthier people are more likely to gravitate to disruptors, and John Lewis customers are wealthier.
Virginia Monk, managing director at Network Research, says: “It’s becoming increasingly apparent that no company or business model is safe. Any current model can, and should, be replaced on an ongoing basis if it means creating value for the consumer. This research provides marketers with a wealth of information about where it is best to spend your marketing budget and the types of messages you want to get out there.”
Depending on what institution you are decides how vulnerable you are to disruption. Barclays, for example, had over 50% of their customers in the two segments least likely to adopt disrupters, compared to a minute 15% of customers at Monzo.
On the other hand, a third of Barclays’ customers feel into the two segments most open to disruptors.
A deep understanding of customer motivation is required to avoid losing customers and to gain them from competition.
Value and price were key factors. In the finance sector, people are choosing brands such as Revolut, Monzo, PensionBee, and TransferWise not only because they provide better value for money, but also because they offer better digital solutions.
Financial services in the study
John Lewis Finance