In the last few years, the financial services industry has seen an influx of challenger banks including Monzo, Revolut and Starling, all looking for a slice of the pie that has been traditionally held by ‘The Big Five’ made up of Nationwide, Barclays, Lloyds, HSBC and RBS.
In 2016, research firm KPMG published a report in response to the emergence of the ‘new breed’ of banks. The report revealed that challenger banks had been able to far outperform the Big Five between 2015/16 with regard to return on equity, achieving 17% in comparison to the Big Five’s 4.6%. In addition, lending assets for challenger banks was up 31.5% in stark contrast to the 4.9% decrease seen by the likes of Nationwide and Barclays.
The leading cause of the changing landscape is credited in a large part to the increased functionality and simpler, streamlined offerings that the challenger banks provide their customers, with many finding and exploiting niche gaps in the market. And the absence of legacy technology, coupled with increased regulations created a window of opportunity for challenger banks to exploit.
Which they have.
A recent article by our Fintech client, Fraedom, provided further insight into changes in the banking industry, expressing that challenger bank popularity has come as a direct result of their ability to address customer pain points more effectively – and as a result, provide frictionless services.
Many similarities can be drawn to the recent trends we have seen in the retail industry, with a heavy focus placed on the importance of enhancing the customer experience in order to both attract new customers and ensure the loyalty of existing customers.
In my role as Marketing Executive and Designer, I am fascinated by the clever marketing and branding techniques that have been deployed by the challenging firms to disrupt the financial services industry – recognising and exploiting trends and pain points to meet the needs and wants of increasingly large segments of the market.
With my design head on, the influence of branding has been central to the new players’ success.
Are customers really drawn by the ease of use, apps and real-time data provided? Or is it the fancy, colourful and textured cards such as Monzo’s ‘coral’ card or N26’s brushed metal card that are causing the shift?
There appears to be a shift towards credit and debit cards that increasingly are a fashion statement. A trend started by Egg over 10 years ago, a card that people are proud to take out of their pockets appeals to many. To that end, the bright colours act as a constant advertisement and visual cue for the banks, sparking interest from those without.
If any evidence was needed to prove the influence of these fashionable cards in the banking industry, look no further than Apple recently introducing its ‘Apple Card’. The titanium card is infamous for coming with its own set of storage instructions to prevent damage from leather or denim… Because who doesn’t carry their credit card in a wallet or purse? Right?
Apple’s attempt to challenge the financial services industry supports the notion that design and branding is a key factor in attracting customers – and of course, it’s absolutely in keeping with Apple’s zeal for visual simplicity. However, its shortcomings and bad press, albeit for a product in its infancy, confirms that design and branding fall flat in the absence of functionality.
This is something that Starling got right when launching its new turquoise card. In its own blog, Starling explained that the distinguishing look of the card reflects its entire approach to banking, a move that marked a ‘challenge to old methods and a response to cultural shifts’.
Will the traditional banks or the older payment providers respond? I’d argue Mastercard already has by boldly removing the company name from the brand identity.
Another technology-driven cultural shift is the transition towards app-based banking. In the UK, there was a 17% reduction in the number of bank branches between 2012 and 2018 (House of Commons Library). This further evidences the importance of branding and design as a new differentiator. People banking with their local branch or venturing slightly further afield for a better service has been replaced by their ability to bank from their mobile phones.
To conclude, it becomes clear that getting the balance right between functionality, services and branding is what has enabled challenger banks to appeal to customers and disrupt the banking industry.