Analysis from global management consultancy A.T. Kearney has found that more than one in five UK consumers (21%), rising to one in three millennials (32%), now state their primary banking relationship is with a challenger bank.
The report, ‘How convenience, innovation and trust will shape tomorrow’s banking’, revealed that customers mostly use challenger bank accounts for everyday expenditure such as going out, shopping or travel, but overwhelmingly choose to use traditional bank accounts when it comes to important financial transactions such as bills, salaries and mortgage/rent.
Remarkably, over half of challenger bank customers still have their salaries paid into a traditional bank account, indicating the traditional banks are still the most trusted when it comes to customers’ biggest and most important transactions.
Simon Kent, Global Head of Financial Services at A.T. Kearney, comments:
“Challenger banks may be new to the market but they’re intent on dominating it. Their flexibility within the market combined with an innovative range of products make them an attractive alternative to traditional banks.
Traditional banks continue to dominate the market, considered more financially stable and trusted by loyal customers and challenger banking customers alike with the biggest and most important transactions, but with many millennials opting for the younger and hungrier competition, the market is set to change dramatically if high street banks fail to act. If traditional banks want to stay relevant, they must quickly adapt whilst capitalising on their biggest asset: trust.”
Traditional banks will have to address why people switch to challenger banks: ease of use (39%), ease of account opening (36%) and the bank’s attractive use of technology (28%). Although, almost one in three challenger bank customers regard financial stability as one of the chief attractions of traditional banks (32%).
If traditional banks want to stay relevant, they must quickly adapt whilst capitalising on their biggest asset: trust
Despite this, an increasing number of challenger bank customers would consider taking out a loan with their bank (40%) or using them as a mortgage provider (49%), showing that challenger banks are gaining trust as a full-service provider, including for large credit transactions such as mortgages.
Inaction will cost providers failing to offer similar products to challengers. One in three traditional bank customers said they’d be willing to switch to a challenger if their provider made mistakes or offered inferior services. However, there is still risk in the challenger market. Almost a quarter of Gen Z customers (24%) say they would switch from a challenger bank back to a traditional bank if their bank suffered a data breach. Challengers cannot take the custom of the younger generation for granted.
A.T. Kearney’s analysis highlights how traditional banks must innovate if they want to counteract the threat posed by their younger, more dynamic rivals. While they can currently rely on consumer trust, high street banks are missing out on a significant share of everyday expenditure. Without this crucial data, challenger banks will have the edge when it comes to inventing and innovating the products and services that match the changing needs and behaviours of customers.