Challenger vs corporate banks – why FinTech and a consumer focus makes all the difference

by Heat Recruitment

By Alex Russon

According to recent research, the UK’s banking sector alone contributed £24.4bn in tax receipts through the bank levy – an annual tax on all the debts held by UK banks. Overall, the financial and professional services industry contributes a huge £176bn to the economy as a whole.

As connectivity increases for businesses across the world, most evidently in the form of 4G networks and high-speed broadband connections, businesses are beginning to buck the traditional methodologies of work… particularly around financial services and banking.

The term ‘challenger bank’ refers to any bank that has been developed to stand against the big four – Lloyds, HSBC, RBS and Barclays. The difference, however, is that challenger banks, as with many start-ups, agility and an openness to technology is baked in from the offset.

Leading the charge, we see digital bank Monzo, which has now been granted license to expand its operations to Ireland. In its latest funding round, the company raised £71m to help it “re-invent the current account.” The aim, according to CEO Tom Blomfield, is to reach “contribution margin positive” – having each customer generate more revenue than they cost to service.

So, what’s the difference between challenger and corporate banks… beyond the obvious?

One of the most significant reasons that challenger banks are a thorn in the side of the UK’s banking institutions is a simple one – the use of FinTech to increase efficiencies. FinTech is disrupting the way that financial institutions work today, with the global value of investments in financial technology now predicted to hit $46bn by 2020 – a huge increase from 2013 figures, where just over $7bn investment was seen.

Supported by the rise of mobile usage, the number of mobile banking apps is now predicted to double by 2020 – up to 2.3bn users. In addition, according to the banking industry trade body, actual visits to branches are set to fall to 288m per year. It’s clear that the actual requirements of customers are changing dramatically – and traditional banks are struggling to keep up.

According to a recent feature in The Verge, the UK’s challenger banks are now “throwing away the rulebook” in pursuit of customers. Kit Carson, Head of Banking and FinTech at GlobalData, advised that: “As a consumer, our experiences and expectations of banking are being set by how easy it is to get shopping through Ocado, or [the] ease of downloading a running app with a thumbprint. It’s being set by all these other service providers and that’s where our sky-high expectations now exist.”

He continued, “When you look at the challengers all the marketing is ‘We’re here for you’. It’s very much ‘we’re creating the solutions for you that you need today’. They’re really talking to the consumer.”

As smaller entities with more room for flexibility and fewer (if any) infrastructure costs beyond staff and technology. Not being burdened with ATMs or actual branches, the industry upstarts are able to operate within existing parameters –  just with a far greater focus on what customers actually want. A noble pursuit, and a profitable one.

It’s clear that, beyond FinTech, the real difference between challenger and corporate banks ultimately comes down to the focus on customer service.

Current strategies from traditional banks simply do not fit with what the modern consumer actually wants. What challenger banks are doing to disrupt the industry is remarkably simple – they’re listening to what customers want and are using cutting edge technologies to give it to them.

Moreover, they are increasingly becoming the employers of choice for a wave of graduates and experienced finance professionals looking to forge their careers within financial services.

Indeed, research has shown that employees working for challenger organisations report having a greater sense of loyalty to their employers, largely born out of a belief and shared vision for what the business is striving to achieve. Because many of these businesses are still in their infancy, when compared to traditional players who can be several hundred years old, employees recognise the role they can play in influencing the future direction of the business.

Both challenger and traditional banks have their positives and negatives – it’s simply a case of identifying the environment, culture and type of role that is right for you. If you need support in finding your next role in financial services, get in touch with the team today.

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