Published: 09 September 2019
Author: Noel Peatfield
A new generation of banking customers are trying out digital-only banks while keeping their primary finances such as salaries and direct debits managed by their traditional banks. Challenger bank app-based accounts are being used for personal finance where lifestyle spending can be easily analysed on a mobile devices but will this be enough to make them fully convert?
According to research conducted by comparison site finder.com 47% are keeping £1,000 or less in their digital-only bank accounts. If this sounds familiar then you could be one of millions who have taken the first step towards digital-only banking but like many others have not left your traditional bank behind entirely.
The challengers have embraced open banking building their platforms on new architecture making it easier for third party fintech apps to be enabled by customers. By providing new services and having the ability to segment their spending between two accounts a new banking status quo where having a secondary digital account is becoming a new normal.
Setting up a challenger account in some cases only takes a few minutes after downloading an app and doesn’t take much effort. What can start as a simple online search can quickly turn into a functioning account with a payment card on its way. Once it arrives in the post the idea of ditching a primary account that has been used for many years handling the most important finances may not always be front of mind.
New users are quickly met with contemporary and intuitive mobile designs that display brand logos next to their transactions and offer numerous ways to aggregate payment data. Digital banking is bringing data visualisation to the B2C market and making it work on mobile screens keeping customers up to date and engaged with their finances.
Traditional banks are in the race to keep up with fintech innovations that help their customers manage their finances online as a report from the Office for National Statistics earlier this year shows that 6,000 local bank branches, a third of the total, have closed since 2010 leaving some with little choice other than to use online banking.
The digital transformation of incumbents competes with the agility and nimbleness of challenger startups who move fast and without the burden of building on decades old legacy systems. For them to be effective changes also have to come from within. A mind-set that encourages fintech entrepreneurialism is being seen with banks running co-working spaces, intrepreneurships, innovation labs and accelerators.
Traditional banks maybe seeing a larger share of the wealth but customer data from discretionary lifestyle spending is migrating away from them. The finder report shows that while 12% have fully switched to a digital-only bank 63% of banking customers are saying they plan to convert fully to digital banks in the future. There is still a long way to go before customers can be persuaded to have their salaries paid into their new digital accounts but this would be a significant development in getting them to make this switch.
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