Digital gap widens between traditional banks and challengers

By Emma Olsson | 11 June 2020

The gap in digital performance continues to grow between traditional banks and challengers as the pandemic exposes incumbents’ inability to adapt. 

Mark O’Keefe, founding director at Optima Consulting and Payments Systems Regulator (PSR) panel member, says few incumbents have stepped up to the plate during the pandemic.

“When we first started to study [banks] we were asking: Will the traditional players catch up to the new kids on the block? And that’s what we hypothesised would happen, and the reality is every study we’ve done, [the gap] has grown,” says O’Keefe, referencing the Optima Consulting Mobile Banking App Review published last week.

Findings show that challengers offer an average of 13 more current account than traditional banks - a significant change from 2018 when there was an average difference of nine features.

“Open banking is coming into the marketplace, new features come in and [challengers] just get on it and adopt, and I think that now is really starting to evidence itself,” says O’Keefe.

For years traditional banks have remained staunch in their decisions to keep physical branches and call centre services open - a mindset which changed drastically during recent lockdown procedures.

“To then say ‘don’t call us, don’t call into branch, go do this online’ is breaking some of that psyche that banks have had as their sort of garden walls. That they’ve got the physical infrastructure, but then telling people not to use it.” O’Keefe thinks these changes could have long term repercussions for incumbents, as customers realise the convenience of mobile banking with challengers.

But not all incumbents are equal in their pandemic responses. In early April, TSB launched a chatbot to assist customers with coronavirus queries, the first time the bank has ever offered a live chat service. In the announcement, the bank’s chief operating officer (COO) said it had taken them just five days to implement the function. While O’Keefe thinks it’s a step in the right direction, he believes such changes reveal a cultural problem in traditional banks: “It took a global pandemic and you’ve been able to implement parts of it.”

While some have used the pandemic to trigger digital changes, for others it has presented yet another hurdle. The study notes that Virgin Money, who once offered third party accounts via Open Banking, have since removed the features. “When asked about it they said because of coronavirus they’ve had to reprioritise and are taking that out. And that feels like a convenient excuse … it says ‘we have got an inferior product and we’re working on it, give us some time’,” says O’Keefe.

According to O’Keefe, the worst case scenario for banks isn’t that they lose customer accounts, but that they lose the spending behaviour that enables banks to make lending decisions.

“I think the lending ramifications are significant if you think about payment holidays and the amount of people that are under financial stress and in a way, the mainstream banks are the ones that have been doing the lending and the challengers haven’t. So you’ve got that headwind for the incumbents that will be fighting or losing out.”

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