We look at digital banking and how apps are now banks' most critical asset.
If your smartphone is your first and only point of contact with your bank, chances are you’re supporting one of the firms in one of the UK’s exciting fintech spaces: digital banking. We examine the challengers’ move into the mainstream and look at why apps are their most critical asset.
The UK has a thriving fintech market and last year it attracted more funding than anywhere in the world outside the US. Made up of over 1,600 firms – a figure that’s estimated to double by 2030 – UK fintech contributes £11 billion and over 76,000 jobs to our economy.
If you’ve transferred money using Wise, browsed for the best deals using comparethemarket (owned by fintech giant BGL Group), sent money abroad using ZEPZ, or bank with the likes of Revolut, Starling or Monzo, then you’re helping contribute to that growth.
Banking on digital
It’s easy to see why we’re drawn to these brands: with just a smartphone and an app you can quickly move funds between businesses, pay friends anywhere in the world, pick competitive offers and access an array of financial services.
Those last three brands mentioned above – Revolut, Starling and Monzo – are part of one of the most exciting parts of the UK’s fintech scene: digital banking. Challenger banks like these are so-called because of the way they’ve disrupted traditional banking sector. Instead of having networks of physical bank branches, for instance, these businesses are built on and accessed in the digital space. As you’d expect, they all have sparse but slick desktop sites, yet it’s their mobile apps that really set them apart.
Take Revolut, for instance, which boasted an estimated 21.1 million downloads last year. This netted it second position in a list of top ten mobile banking downloads, and the only UK-based company to secure a spot. That’s pretty impressive for a company that’s only been going since 2015!
Competition: the price of digital banking
Challengers have had the benefit of building companies that are digital-first. Unlike traditional banks, they’ve not had to migrate masses of data from physical to digital formats, navigate decades of software upgrades, upskill and reskill staff to use different IT systems, and so on.
What they have had to contend with, though, a market that’s quickly grown very competitive. This competition takes a number of forms:
Competition between providers to get noticed in a busy space: EU regulations like the Payments Services Directive (PSD2) and Open Banking in the UK have made it easier for new entrants to establish themselves.
Competition between providers to hold onto customers: the ease of accessing digital services – think of how long it takes to download a banking app – means that customers can more easily jump from one provider to the next.
- Competition to hire the best brains in tech: a report by EY states that ‘the strong competition for talent, especially in technology, has increased the average cost per employee.’ This is a trend EY expects to continue, with tech skills in high demand.
The relationship between a traditional bank and its customer will likely straddle multiple touchpoints – they’ll talk to a customer service rep in-branch, call a helpline for assistance, browse services on a website, have an appointment with a specialist to buy that service and so on. With a challenger, things are different. The app is the gateway to the service, and the prime point of consumer engagement.
Platforms like these have shifted the control from service provider to service user: consumers can set up accounts and access services that would traditionally have entailed a trip to a bank branch. Self-serve has its advantages, but the success of this approach requires a high level of security.
This was questioned in a Financial Conduct Authority (FCA) report that called on challenger banks to improve how they assess financial crime risk. Commenting on the report, Sarah Pritchard, Executive Director, Markets at the FCA stated, “there cannot be a trade-off between quick and easy account opening and robust financial crime controls.” Robust security tools – digital verification, multi-factor authentication etc. – must therefore be at the heart of any challenger banking app.
In addition to security tools, there are a number of other ‘must haves’ for any challenger app wanting to keep customers happy and competitors at bay!
As the prime point of customer engagement, the app must reflect the service provider’s branding in its design.
Support must be visible and easily accessible. It must comprise FAQs, chatbots and human contact available 24/7 via voice and messaging.
Apps should be feature-rich, with all the benefits customers are growing to expect from a digital-first fintech.
Features should include instance real-time payments notifications, tips and tools for saving and instant security alerts.
Apps should be regionalised and personalised, offering services and assistance based on a user’s spending activity.
Back-end systems should enable agility, allowing the challenger bank to change and add new services to keep up with trends and remain competitive.
A good recent example is JPMorgan’s UK digital banking product Chase. The service only launched in 2021, yet already it’s entirely revamped its app, including making a change that ‘lays the groundwork for its push into the investment space.’
Challenger banks may be moving into the mainstream, but to remain competitive it’s important that they maintain that edgy, disruptive essence. And that means apps.
Get in touch to learn more about how AppDrawn can help create competitive apps and digital platforms in the fintech space.