Independent fintech expert Marcel van Oost compares two leading neobanks with two incumbents, one pair in the US and one pair in the UK, to see what room there is for mutual disruption.
Digital disruption in banking has been revolutionising. Emerging companies, offering incredible software solutions for digital banking, businesses promising to digitise and move core banking to the Cloud, and providers of market monitoring tools, allowing any bank to monitor its competition and itself, every second of the day, are leaders of this revolution.
What is the cause, though? There must be a driving force behind this sudden need for digital transformation. The banking industry has never shown such high interest in going digital – not until these last few years, with the emergence of digital banking services and increasing use of ebanking.
Challenger banks have had a huge impact on this rush towards digital banking transformation. Mostly because of their nature. By definition, neobanks and challengers are built on a customer-centric approach, an ideology that puts the customers’ needs and desires at the core of product development. They are banks built by people, to cater for people. Putting their wishes and experience first is one of their main goals.
Since the rise of challenger banks, a lot of traditional, well-established high street players have seen an alarming rise in switching, as customers choose these challengers for their everyday banking – most often the younger age groups who prefer the newcomers’ modern, digital look. People who are used to organising their entire lives via their smartphones and watches, find challengers obviously appealing.
That appeal has turned into trust, and now a vast number, while they might also maintain an account at a high street bank, also use the likes of Revolut and Starling for more of their everyday banking needs. Yet, high street banks have been offering services through their digital banking platforms for many years. They were the pioneers of digital banking. So, what made everyone abandon them?
Ralph Waldo Emerson’s quote ‘it’s not the destination, it’s the journey’ answers that well. And here’s why.
Let’s look at the ‘destination’. In this case that’s the user being able to execute anything they previously could with a high street bank, through a digital challenger: the so-called functionalities. They play a big role in customer satisfaction. The more, the merrier, for a user who wants to be able to control their expenses right from their phone.
So, now we come to the ‘journey’. In digital banking, offering the most is not the most important factor. Sometimes it can even have the opposite effect on users, and repel them. Sometimes it may not even matter how much a bank offers them. Why? Because they also look at how well the bank offers it. Does it take less time and effort to do the same task with a high street player as with a challenger?
If this is the case for a lot of tasks, then no matter how many functionalities you offer, the user experience you provide will render them worthless.
United States vs Europe/UK
A look into digital banking in Europe and the US shows the wide difference that exists in their respective financial landscapes.
Europe’s list of challenger banks is endless and many of them, such as Bunq in France, operate across borders. Some would say that there are way fewer US challengers (on a neo-to population basis) than Europe is offering, and many have fewer capabilities than their European counterparts.
On the other hand, both the US and Europe have highly distinguished high street banks, like Bank of America and the UK’s Barclays. Who could underestimate them? Let’s allow the numbers speak for themselves. We are going to analyse two scenarios, one for each region: PNC vs SoFi in the United States and Lloyds Bank vs Revolut in Europe.
Our aim with these comparisons is to see their differences, in terms of digital banking, and answer, to some extent, why a customer would switch from one to the other. The areas of comparison are:
- Functionality per channel (web, iOS, Android)
- Functionality focus
- User experience (UX)
- Major gaps
Banks each have their own way of carrying out this analysis and it would take months of research to identify, quantify and examine. However, fortunately, the team behind FinTech Insights and its platform have made it possible to access the insights we need, much faster.
United States of America
PNC offers more than double the amount of functionalities provided by SoFi when it comes to its web channel. The exact opposite is true for the mobile apps. SoFi offers more than PNC in general – it has a mobile-first approach. A closer look shows that, across all channels, in the categories of accounts, money transfers, cards and general payments, PNC still offers more. These are core services for banking – the most important ones
PNC’s functionality focus across all channels is its wide account and money transfer offering, whereas SoFi aggregates most functionalities into personal financial management and wealth management
SoFi offers better UX across all channels than PNC. It doesn’t matter if we are talking about transferring money, managing cards or paying bills. It’s also judged to be more friendly and frictionless for the user. If we really put these two banks to the test and compare both what they have in common, and what is unique to each, we have some very interesting findings.
SoFi could add the following to its digital banking apps, which PNC already offers:
- Applying for an overdraft
- Searching for a specific transaction through its category
- Any functionality that allows the user to add, edit, delete and manage another bank recipient and their details
PNC could add the following to its digital banking apps, which SoFi already offers:
- Closing a savings account
- Setting a budget
Any functionality for the management of its card. Even though it offers a separate app for this, it causes a lot of friction for the user to have two different applications for managing their finances.
Revolut is known to many as the original unicorn of fintech, and currently offers more functionalities than any otherbank across Europe and the US, which is, in itself, impressive. But how does it stand up against one of the best-known high street banks in the UK?
Revolut does not offer digital banking over the web channel, whereas Lloyds does. Yet, when it comes to mobiles, where Lloyds offers an average of 150 functionalities for both its iOS and Android apps, Revolut offers 400 – more than double the amount Both banks aim to offer the most for accounts and money transfers, with a wide range of financial products and a plethora of ways to transfer money to a third party
Something special comes up when you compare the UX offered by Revolut and Lloyds Bank. Even though the gap in the number of functionalities they offer is big, their UX is the same. There’s no discernible difference across all categories, except the online account opening process, where Revolut takes the lead
What can Lloyds or Revolut add to their digital product roadmap to surpass each other? And which are the features they have each failed to include that would make a big difference?
Revolut could add the following, taken from Lloyds digital banking:
- Cheques management
- Opening an additional current account
- Applying for a card replacement instead of cancelling an existing card and ordering another one
On the other hand, Lloyds has plenty of options when it comes to enhancing its existing digital banking applications with new additions from Revolut. Here are some that stand out:
- A multicurrency account, enabling users to hold many different currencies under the same account number
- In-app wealth management, such as buying and selling stocks or even cryptos and commodities
- Virtual savings accounts or savings pots, instead of using real savings accounts. Setting up a savings goal in Lloyds requires opening up (if a customer doesn’t already have one) a new savings account, whereas Revolut just adds them to a digital pot
It seems that finding the sweet spot between what you offer and how well you offer it is a tough job, and gaining insights into your competition or market is not easy. Banks need to pay closer attention to all the offerings and user experiences that challengers have.
There appears to be solid explanations for increased customer turnover – challengers are so-named for a reason: they are upending the financial ecosystem through innovation, technology and customer experience excellence. And yet the incumbents have not lost the battle. They still have the means to become better and show customers that they are worthy of their long-held trust.