A report by global consulting firm AT Kearney recently addressed the emergence of digital challenger banks. Published last week, and authored by Simon Kent and Danil Makarov, the research states that challenger banks are “already mainstream” and if old school high street banks don’t wake up they will become “a thing of the past.” Harsh words for old banks.
This is not the first time that researchers have sounded a warning bell for traditional banks operating in a Fintech world. While full of money, expertise, and market share, old banks simply aren’t agile enough and are moving too slowly to address the rising competition. As the saying goes, first it is very slow and then it is very fast. Demise can sneak up on you and banks risk joining the graveyard of businesses of lore like Blockbuster Entertainment – a company that laughed at Netflix.
AT Kearney reports that challenger banks are beginning to “colonize” an important demographic – individuals under the age of 38. While “traditional banks retain public trust,” the “charms of challenger banks” are gaining traction. Consumers like the ease, simplicity, diversity of services, and yes, the cost, of digital-first banks. In fact, according to AT Kearney:
“When customers were asked why they had opened an account with a challenger bank the responses were telling: 36 percent of customers cited ease of account opening, 39 percent said ease of use, 28 percent cited the banks’ attractive use of technology, and 20 percent said compatibility with other apps … Such figures suggest that traditional banks need to prove they can exceed consumer expectations to ensure their customers aren’t lured away by alternative providers.”
Sure. Today, all traditional banks have mobile applications but, in my personal experience (a survey of one), they pretty much suck. Even worse, an older demographic is showing a willingness to abandon their tried and true brick and mortar bank.
“Respondents across all age groups showed high levels of interest [in challenger banks]. While traditional banking customers aged between 55 and 73 were least likely to say they would consider switching from a traditional bank to a challenger bank, a third stated that they would be open to switching in the case of a deal or if their current provider got something wrong.”
Yes, AT Kearney really wants to share their expertise and help old banks to change their antediluvian ways of poor service and hidden fees. But it is a truism that digital banks can provide everything a traditional bank may offer and more – minus the exorbitant overhead and a gut-churning update of out of date banking software.
AT Kearney warns:
“If challenger banks succeed in offering the full suite when it comes to loans and mortgage packages there is a serious risk that traditional banks could be reduced in status to little more than back end utility providers—still forming part of the banking infrastructure by virtue of their size but no longer dominating the picture. To prevent this scenario, traditional banks must actively endeavor to regain any current account customers that they have lost to challenger rivals and continue to harness that everyday spend data to develop the best products and services. The difference between traditional and challenger banks is already blurring in the mind of consumers. Though trust is vital it won’t, ultimately, be enough to ensure the survival of traditional banks.”
Traditional banks must disrupt themselves. Shuttering unnecessary and expensive physical offices, firing front line employees, gutting hidden fees while providing new services. The path is obvious. So can they do it? Blockbuster couldn’t. Nor could Kodak, really.