Are challenger banks too ‘fun and friendly’ to really win our trust?

Like any good brand strategy, the challenger brands did well at “defining their enemy,” says Rob Williams, director of the M&C Saatchi-owned consultancy Clear. “Their enemy was the high street bank. There hadn’t been any new entrants, the banks weren’t working in the best interest of their customers, they were quite slow, quite clunky and disconnected.”

Challenger banks were the pioneers of digital banking, winning people over with easy-to-use apps, innovative ways to bank while traveling and paying friends, all with slick design and UX. Customer satisfaction among challenger banks is high. According to YouGov research, Chase, Starling, Monzo and Atom have the highest UK customer satisfaction scores out of all banks.

There is a huge disparity, though, between this customer satisfaction data and other research that suggests people are still primarily banking with their traditional bank.

Take Kantar’s BrandZ report. The research does show that Monzo has boosted its brand value by 21% in the past year and its market share has doubled in the past five years to reach 4.8%, well above the 2.6% average for fintech banks. It also has 10 million members, yet just 33% of Monzo customers say it’s their main account, compared with 61% for Barclays.

It’s an issue these banks are working hard to solve. In March, Monzo raised $429m in investment to develop new services that would give its customers more reasons to use its products, such as a place for people to consolidate multiple pensions.

Speaking recently to The Drum, Monzo’s vice-president of marketing, AJ Coyne, acknowledged the bank had a big task on its hands to scale the business. “Monzo has got all of the wonderful ingredients to make a truly iconic British brand. You’ve got the distinctive assets, you’ve got this wonderful tone of voice, you’ve got a product that’s redefining a category. But there’s a job to do to win the hearts and minds of every living room in this country.”

The big banks caught up

Adele Jolliffe, head of the brand consultancy and insights division at Kantar, believes the fintech banks have been strong competition but are starting to “stutter.” They won over customers with better UX and digital products and specific needs such as spending money abroad and splitting the bill. But, Jolliffe says, they haven’t yet been able to build “emotional connections around trust,” which people need from their main bank. Setbacks such as Starling Bank’s $38m fine from the FCA for its “shockingly lax” financial crime failings won’t have helped perceptions of trust. “It’s almost as though they’re the fun friend we want to have in our pockets on holiday – but for the big life moments, we still go back to the big high street brands,” Jolliffe says.

Not only are people still using the high street banks for their bigger purchases, but research by Kantar has found that having a fintech account increases customers’ preference for their traditional main banking provider by 10 percentage points.

Williams, who signed up for Monzo when it was still in beta, was hooked by the simple proposition of a better way to bank. But unfortunately for the challengers, a decade on, it is “suffering from its own success,” he says. “The high street banks very quickly noticed what was happening and they started to modernize their approach. In that sense, the challenger has done what it was supposed to do, injected energy into the industry.”

The recent Lloyds rebrand is a great example of a bank modernizing its digital products, advertising and brand identity. The new Lloyds looks both modern and fresh, according to Williams.

If traditional banks can successfully modernize then they will be more attractive to bank with then the challengers, says Williams, because of the “safety blanket” that comes with having a physical bank and a longer history.

“Now that the mainstream banks have taken on that more modern approach to banking and applied it with a bit of the old-fashioned stuff in there as well, people will gravitate towards the major players where there is that perception of too big to fail, as well as trust and security.”

How should challenger banks fix these challenges?

So, what can the challengers do to gain more customer trust? It comes back to that ‘fun,’ Williams thinks. “Speaking very matter of fact and very chummy is both a pro and a con to some people who see it as less serious. When you’re thinking about someone’s money, which is probably the most important thing to some people, you cannot give this perception that we are the people who aren’t going to take it seriously.”

Sam Page, who is the chief executive officer of the digital innovation agency 7Dots, thinks challenger banks should take inspiration from other fintech innovations to engage younger bankers. “One good example is Cleo, a personalized AI finance app designed for Gen Z that really gets under the bonnet of its target audience and speaks to them in a way no traditional bank could manage,” Page says. He praises Cleo’s use of relatable content, how it analyzes finances and offers helpful tips as well as a quick response AI chat function.

Page offers up the wealth management platform MoneyFarm as another company to learn from. MoneyFarm combines user-friendly technology with personalized advice. “This people-first technology approach starts from the premise that money, after all, is a tool for achieving life goals. This is the way that the digital disrupters can continue to disrupt – prioritizing people over transactions.”

Now that traditional banks are catching up with the newcomers and the newcomers are battling it out to be seen more like traditional banks, competition in this sector is only set to get fiercer. Jolliffe says this isn’t a time to be complacent. “Customers don’t see them as different from competitors and that’s a real risk in such a crowded market. These banks need to ensure they’re making the right targeted marketing investment to stand out and grow in the long term.”