A new report by, ‘Who are you calling a challenger bank’, looks at the role of new entrants to the UK banking sector in driving innovation and consumer choice.

The findings will be of interest to anyone who works in marketing in the sector, whether for a traditional or ‘challenger’ firm.

The report – based on research and interviews with CEOs of new entrants to the market – identifies four key findings:

  • ‘Challenger bank’ is not a fair reflection of the services offered by these new entrants
  • A more level playing field in terms of regulation will help to improve consumer choice and outcomes
  • ‘Open Banking’ will deliver major change to the UK market
  • Each business faces specific challenges to success

Here we look at each of these and identify the challenges – and opportunities – they pose for marketers.

What defines a challenger bank?

The term has become used to describe any bank that isn’t part of the mainstream.

Typically, the companies covered have clear and unique selling points, often around geography, product specialism or client type or need.

Looking in from the outside, the focus when talking about these companies tends to be their ability and desire to challenge the main high street banks.

In fact, the report says, this tends not to be their driving force, ‘rather, their goal is to serve their target market profitably’. They are focused on the success of their own individual business models; performance in relation to their mainstream competitors isn’t their raison d’etre.

Four types of business

The report asserts that ‘there is no such thing as a challenger bank’ – instead, identifying four groupings within the sector:

  • Mid-sized full service banks
  • Specialist banks
  • Non-banks brands
  • Digital-only banks

These new entrants are shaking up expectations across the industry. Marketers – within or outside of these areas – need to be alive to the changing nature of competition and the potential impact of their new peers.

Regulation can enhance competition

Regulation is often seen as stifling innovation and competition. The report believes otherwise.

Already, regulatory policy has made it easier for new entrants to join the market. The FCA’s ‘Project Innovate’ has assisted over 300 firms to date, and its Regulatory Sandbox aims to help firms to develop new delivery methods in a compliant way. Its Advice Unit provides help for those investing in automation.

The firms taking part in the research appreciated regulatory efforts to create a more level playing field for start-ups.  Future work to increase transparency of products and improve proportionate regulation, among other things, is cited as important in making more progress.

Open Banking will drive further change

What is Open Banking?

It’s a government initiative aiming to increase transparency in data and sharing, often facilitated by open source technology.

It will lead to new business models. The report believes that it will lead some firms to specialise in developing their own products in one niche area to deliver an improved customer experience. For others, the benefit will be the ability to link together offerings from a number of providers seamlessly.

The advent of Open Banking may well increase competition from companies like Amazon, Google, Facebook and Apple, all of whom own a huge amount of customer data and insight.

Adding financial services to their own offerings may see companies like these stepping between traditional banks and their customers, leaving the incumbents in a purely back-office role.

Product development will be key to ensuring your offering remains ahead of your rivals. And taking your solutions to market as quickly as possible is essential in maintaining your position.

Each business needs to overcome specific challenges to succeed

The research highlighted specific customer perception issues within each of the sectors covered.

The traditional banks need to present themselves as modern and customer-centric. Digital-only start-ups need to raise awareness offline.

Strategic decisions like which segments to target, and which products to focus on, will be vital. Products and services will need to be tailored to those market segments.

What does all of this mean for marketers?

An increasingly customer-centric market will enable customers to combine and personalise the services on offer for a more bespoke experience. Crucial to this are the digital technologies that support banks in delivering a seamless service.

For marketing teams in banks, this raises many questions.

  • Who is your market?
  • What products or services will you focus on?
  • How can you position yourself as a provider of leading-edge, personalised services to your market?
  • How does this differ from your existing offering?
  • How can you keep on top of your ever-expanding list of competitors?
  • How can you build a market presence within the requirements of the Financial Conduct Authority?

Whether you are a start-up or a traditional bank, all of these questions are equally relevant. Determining your strategy, and then communicating it to the market in a way that meets regulatory compliance requirements, is key.

It’s an interesting time for the UK banking sector. Keep on top of the changes and you will be well-placed to take advantages of the opportunities this evolution presents.

Source: Perivan Technology

Have you an opinion on the above or got an article you wish to share? We’re love to hear from you. Email us.