Part Three: How challenger banks can lead a fair economic recovery from COVID-19

Welcome to our series exploring how challenger banks can lead a fair economic recovery from COVID-19.

In Part One, Josh Gavzey argued that by focusing on support for hard-hit SMEs, challenger banks can support the recovery and deepen their ties with a key segment of the market. In Part Two, Oliver Maskell looked at how challenger banks can earn the trust of new customers, which would broaden access to their services and boost their market share. This week, we conclude with Bill Jennings’ piece on how challenge banks can improve access to financial services by appealing to customers impacted by branch closures. 


Welcome to the final part in our series exploring how challenger banks can lead a fair economic recovery from COVID-19. 

Improving access for customers impacted by branch closures  

More than one third of bank branches in the UK have closed since 2015 (1), the vast majority of those being legacy bank branches.  
 
Despite the FCA urging banks to reconsider this practice (2), branch closures are likely to continue due to the difficult banking landscape, caused in part by the Covid-19 pandemic. Legacy banks are adopting a strategy of consolidating their regional locations into large city centre branches. Challenger banks like Handelsbanken and TSB have followed suit, while Metro Bank was ahead of the curve, having entered the UK market in 2010 with a city-centre branch strategy focused on customer service.  
 
Historically, legacy banks grew through expanding their branch presence and through strong, face to face, relationships with their customers. This trend has reversed in recent years and the pandemic will only accelerate branch closures. A move towards consolidating branches in city centres and providing enhanced digital banking services makes sense for legacy banks. However, it also opens a door of opportunity to challenger banks and levels the banking playing field.   

There are a number of  ways that challenger banks can exploit the current opportunity to win market share, by building trust with customers and by ensuring equal access to banking services

Firstly, challenger banks should engage in customer outreach in communities where legacy bank branches are closing. This initiative should include the holding of pop up workshops to show prospective customers how simple it is to use their digital banking services. The community workshops could be enabled by deploying mobile banking vans and by having trained staff to help new customers migrate to their digital services. Similar to the Barclays digital eagles initiative (3), challenger banks could build real relationships with their customers and foster a sense of trust in customers following personal interactions with staff.  
 
A longstanding truth in banking is that most children join the bank their parents or family use. Challenger banks could run campaigns to incentivise current customers to engage their family to switch to their bank. Revolut is leading the charge in this regard with monetary incentives for customers who secure new users for the bank. Revolut also provides a family offering with Revolut Junior, enabling parents to ensure their children are financially secure while also giving parents peace of mind, knowing how their money is spent.  
 
Secondly, challenger banks can build trust by ensuring their customer service is superior. Prioritising accessibility and ease of use will be a major unique selling point for challenger banks. The first port of call should be AI chat bots (4) through online or mobile app banking. This service should enable a quick transfer to a live chat with a customer service agent if a customer query cannot be solved by the chat bot within a few minutes. The setting up of a swift phone call service is essential to ensure customers can be heard and are not kept waiting hours to resolve their issues. 

Finally, challenger banks need to repurpose their branches (5) to welcome customers seeking advice around major life-decisions like mortgages and other loan products. 

Conclusion 

The road to recovery will be long. As we have explored in this three-part perspective, it presents an opportunity to rebuild in a way that guarantees a fairer society, a key pillar of which will be equal access to financial services and fair treatment for customers. 

This is the time for challenger banks to step forward and lead this fair recovery. Despite increasing customer numbers, many are still struggling to find profitability and require an enhanced value proposition to take on the large legacy banks. By focusing on this fair recovery for SMEs and customers, they can demonstrate that they are a viable alternative, earning trust and helping the country rebuild. This will benefit businesses, customers and the challenger banks themselves; in the long run, it will contribute to a fairer society, which, after the last year, is something we can all look forward to.  

References: 

  1. https://www.which.co.uk/money/banking/switching-your-bank/bank-branch-closures-is-your-local-bank-closing-a28n44c8z0h5  
  2. https://www.fca.org.uk/news/statements/banks-branch-closures-coronavirus-lockdown  
  3. https://www.ft.com/content/1e5c29d0-e532-11e5-bc31-138df2ae9ee6 
  4. https://www.forbes.com/sites/ronshevlin/2021/03/15/every-bank-needs-a-chatbot-or-two-for-its-digital-transformation/?sh=16545664275d 
  5. https://www.ft.com/content/8a03248c-2f8b-4aa9-86db-ce8a409e0e60 

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Author

Bill Jennings Junior Consultant