New digital-only banks, such as Monzo, Starling and Atom seeking to break into the UK market will find the acquisition of customers a slow and challenging process, as consumers remain unconvinced that pure digital banks offer significant benefits over traditional rivals, according to financial services research and insight firm Verdict Financial.
The company’s latest report states that the hype surrounding financial technology or “fintech” over the last few years has failed to excite the UK public, with 61% of consumers having never heard of the concept, and only a fifth claiming to have used a fintech provider in the last 12 months.
Daoud Fakhri, Principal Analyst for Retail Banking at Verdict Financial, explains:
The new generation of mobile-only banks will have its work cut out to achieve a viable scale. 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.
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.
Verdict Financial’s report also says that, despite the current focus on online and mobile banking, branches remain an essential service channel. 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.
Fakhri concludes:
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. Given that these new entrants are targeting precisely this younger demographic, they will find it particularly difficult to gain significant numbers of customers.