Digital-only challenger banks face an uphill task to convince British consumers they can hold their own against traditional, well established brands.
Less than two thirds of Britons are aware of the fintech concept – and only a fifth has used one of the new breed of digital financial services providers over the past year, research suggests.
The familiarity of big players such as Barclays, HSBC, Lloyds and others, coupled with Britain’s ongoing affection for physical branches where customers can actually meet and chat with bank staff, means the challenge facing digital banks is substantial, says financial services research and insight firm Verdict Financial.
“The new generation of mobile-only banks will have its work cut out to achieve a viable scale,” said Daoud Fakhri, principal analyst for retail banking at Verdict Financial. “Only a small minority of consumers strongly agree that these providers will offer better service, rates, or security than they receive from their existing banks, and well over half would prefer to avoid banks that lack a track record or do not have a high street presence.”
He added: “Consumers’ primary criteria when selecting banks include whether the organisations have an established reputation and conveniently located branches. This plays right into the hands of traditional banks and leaves the challengers at a disadvantage.”
To emphasise the importance of actual walk-in branches, the analysis revealed that although online is growing in significance as an acquisition channel, more than half of current accounts opened between 2013 and 2016 were arranged in-branch.
“Our research finds that, if anything, younger consumers are even more dependent upon branches for day-to-day banking than those in older age groups,” said Mr Fakhri.
“Given that these new entrants are targeting precisely this younger demographic, they will find it particularly difficult to gain significant numbers of customers.”
The report further revealed the top six ‘big’ providers have a 70% share of the UK current account market, and consumers choose their providers on the basis of reputation, branch location, and personal recommendation.
Satisfaction levels are higher for digital channels than for human channels, with 60% of users saying they are very satisfied with online banking, compared to just 37% for telephone banking.
Borrowers are sceptical about non-traditional lenders, with over half stating they do want to use lenders that lack established reputations and a minority agreeing that online lenders offer better rates or service.