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A major survey of UK consumers has revealed that banking products are more important than customer service levels and branches are more important than mobile apps.
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The report Who are you calling a challenger? surveyed 2,000 consumers in the UK about their banking preferences. It sheds light on where challenger banks and financial technology (fintech) firms can make ground on the established banks. For example, customers are willing to work with multiple banks, but the continuing importance of branches might present a challenge for new banks.
PwC, which conducted the survey with the British Banking Association, said it was aware of eight licences currently being processed for new UK banks and that it was working with 15 firms that were preparing to apply for banking authorisation.
Consumers are now more willing to bank with more than one financial services provider, which is good news for challengers that set their sights on differentiating in certain product lines. The research found that 54% of consumers are prepared to use more than one bank to get the best deals, while 30% would prefer one bank for everything.
But to attract this group of customers, new banks must get the right offers in place, rather than being obsessed with customer service.
The survey revealed that 57% of customers who had switched banking provider in the past three years did so because of financial incentives such as better rates, cash incentives, cashbacks and discounts, while only 11% did so because they were dissatisfied with the level of customer service. This is food for thought for banks selling themselves on their ease of use and their app-based services.
Another challenge for new banks was revealed – the availability of bank branches was seen as more important than a mobile app for people opening bank accounts. The survey showed that 68% of consumers thought a bank branch was essential when opening a new current account, compared with 25% who favoured a mobile app.
John Lyons, head of retail and commercial banking at PwC, said: “To be successful, each bank needs to overcome specific – and not insignificant – challenges. For example, mid-tier high-street banks face pressure to transform their operating models and differentiate their propositions, while digital-only players seek to build awareness with customers and attract them with distinctive service offerings.”
The survey also quizzed 20 CEOs at challenger banks, who said their intention was not to replace the high-street banks, but to target certain areas where they thought customers were underserved.
Lyons added: “The term ‘challenger’ implies the ‘plucky underdog’, a label that doesn’t hold for what are, in some cases, long-established and significant businesses. Many of these banks’ distinctive offerings mean they do not need to compete directly with the large high-street banks to succeed.”
He said such companies might be focused on a certain product range, customer base or even geographical area. “Specialist lenders, in particular, aspire to operate in the gaps left by other banks, typically addressing customers with more complex needs,” he said.
“Many of these banks don’t anchor their propositions around current accounts as they recognise that customers are willing to multi-bank. This was substantiated by our survey, with more than half of British consumers surveyed preferring to use a range of banks for different products and services, according to which is best placed to serve them.”