Long-established names are losing ground to challenger banks, reports Chris Middleton – but UK consumers are lagging behind our own tech innovators.

More than one in ten consumers (11 percent) now exclusively use ‘challenger’ banks instead of established high-street names. And in five years’ time, less than half of consumers will solely bank with traditional brands.

These are just two of the findings in a new report, Technology and the New Banking Customer – European View, from electronics and enterprise systems giant, Fujitsu. The research was carried out in August 2019 among over 8,500 consumers in the UK, Germany, Spain, the Nordics, and Ireland.

Continental users are ahead of their UK counterparts, found the survey, with German consumers most likely to use a challenger bank for all of their financial needs (14 percent) versus just nine percent of British consumers.

Over one-fifth of all consumers (21 percent) use a mix of traditional and challenger services, with German and Spanish customers being the most likely to take this approach (24 percent).

Men are more comfortable than women with just using a challenger bank (14 percent against nine percent), with millennial customers being the biggest sole users of new banking services (17 percent of 16-24 year olds, and 14 percent of 25-34 year olds).

While over two-thirds of all respondents and more than three-quarters of UK consumers only use traditional banks at present – despite the strength of the local FinTech sector – the industry is reaching a tipping point.

In five years’ time, less than half of consumers (48 percent) will only bank with a high street name, 17 percent will solely use challenger services, and 35 percent will bank with a combination of new and traditional outlets.

New consumers choose digital services when they first enter the market, a trend that should be worrying incumbent banks, adds the report.

Speed is part of the attraction for all age groups, with 42 percent of respondents saying that they appreciate faster and better access to their financial information.

A majority of consumers (58 percent) agree that their banking experience is now better than it was five years ago, with nearly one-third of respondents (32 percent) saying that their bank understands their needs better than it did before.

Nearly two-thirds of consumers (63 percent) expect their banking experience to be even better in five years’ time.

The report says: “Loyalty can’t last in the face of convenience, better value, and reputation.”

Access to good digital services is a key influencer of where consumers now choose to bank, with 54 percent saying it is a high priority.

Mobile banking is particularly valued: almost half of consumers say that they look forward to doing all of their banking this way (46 percent). Young customers are the most enthusiastic about it: 53 percent of 25-34 year olds compared to just 27 percent of those over 55.

Yet despite the gauntlet being thrown down to high street banks to be smarter, more digital, and more responsive, not everything is going the challengers’ way.

Nearly one-quarter of consumers (24 percent) say that nothing would make them switch to using challenger-only services, while 60 percent of UK consumers plan to remain loyal to traditional banks.

For customers like these, changes to the banking landscape are seen as “a source of complexity, rather than choice”, explains the report.

“Two-fifths (40 percent) of consumers say that they feel overwhelmed by the sheer number of banking solutions available on the market today. Perhaps as a result, nearly half of consumers (45 percent) say that in five years’ time they plan to interact with one financial services provider, rather than managing multiple accounts with multiple banks.”

Consumers would be more likely to switch to a new service if the bank’s card were accepted anywhere in the world (37 percent), the savings account had a more competitive interest rate (32 percent), or the institution was significantly more secure than a traditional bank (28 percent).

More than half of consumers (56 percent) are worried that the use of new technology by banks will put their data at risk.

The report acknowledges that trust was thin on the ground in the wake of the 2008-09 crash. However, more than one-third (35 percent) of consumers now say that they trust their legacy bank more than they did five years ago.

By comparison, challengers are struggling to secure consumer confidence; only 15 percent of users trust newer institutions completely, while 31 percent have no trust in them whatsoever.

For now, institutional longevity remains an influential factor. But one thing is clear: the future is mobile and digital, if those services are faster, more secure, and better meet customers’ needs.

However, the market could change quickly in an economic downturn or if a challenger bank should fail.

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