Published on in Financial ServicesInnovation

You have to hand it to the challenger banks: they have achieved some fantastic PR.

And much of the attention is justified. After all, we’re talking about new companies with new ideas, entering a competitive but stuffy market and promising to shake it up.

And what ambition. Atom Bank has set itself the goal of redefining what a bank should be”, while Monzo aims to build an alternative to the banking of the past.

But with the retail banking market being notoriously difficult for new competition to crack, how easy will it be for the newcomers to achieve their goals?

The challenge of differentiation

The new entrants see themselves as being innovators, determined to challenge the traditional banking model.

And this is probably true of the way they are trying to engage with customers, through apps and the latest technology.

However, it is less clear that technological deployments will create a long-term competitive advantage. After all, the established banks – which have successfully developed and rolled-out online and mobile banking for the mass market over the last fifteen years or so – are unlikely to slow their own technology innovation programmes, or admit defeat easily.

Free in-credit current account banking is likely to prove to be a significant hurdle for newcomers to overcome. Promotional offers, such as attractive savings rates or lower cost overdrafts can be used to build a customer base, but this isn’t new and shows that, behind the technology, banking products will continue to look very familiar.

And with their large customer bases – although this means that innovation costs multiply – they enjoy an established market position. This provides funds for investment and, to some extent, the time to develop and deploy the best ideas, technology and products.

For example, HSBC has indicated its intent by piloting an app that will enable customers to see all of their accounts on one screen. And these accounts are not just limited to HSBC products, but will include those held at 21 providers including Barclays, Lloyds and Santander.

A challenge for the challengers

So, while the challengers may be showing that they can master technology, it’s too early to tell if their overall propositions are set to be just as eye-catching.

That may only become clear later, once it has become evident whether the new IT platforms can underpin a fundamental change in the nature of banking; whether sufficient numbers of new customers can be attracted to open and regularly use their accounts; and whether the cost, credit and risk profiles associated with the propositions can be managed so as to deliver financial success.

Of course, some challengers may be satisfied with establishing themselves as custodians of second and third banking relationships, perhaps in such sufficient numbers that some of the established banks, or other market participants with deeper pockets, step forward to buy the most successful.

However, many have bigger ambitions than that. Retail banking might yet prove to be a challenge for the challengers.


A longer version of this article appeared in the January 2018 print issue of Retail Banker International.

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Anthony Duffy

Anthony Duffy

Director of Retail Banking at Fujitsu
Anthony Duffy is a highly experienced company director, senior manager and management consultant who has worked in the financial services industry and as an advisor to government for over thirty years.

In addition to advising numerous UK and continental European financial services organizations, Anthony has also held senior line management positions, including  as Director of Strategy for a FTSE-100 bank; Deputy Managing Director of a UK commercial bank; and Managing Director of a UK asset finance company.  He has also worked in central government, advising Cabinet ministers of the development and passage of company legislation.  

Anthony joined Fujitsu in February 2012.
Anthony Duffy

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