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Challenger banks hit the spot with Gen Z

Like everything else with Gen Z, it appears the future of banking is entirely digital. But what exactly are challenger banks, and why are they so popular?

There’s little doubt that the future of banking is headed towards a complete digital revamp akin to the shift in takeaway services like Just Eat and Deliveroo. A new wave of start-up companies have grown from quirky USPs into mega conglomerates over the last year or so, and now people (particularly youngsters) are becoming increasingly keen on the notion of shunning physical banking altogether.

After 100 years of dominance, the big dawg banks of yesteryear are quaking in their vaults.

What are challenger banks and how did they come to be?

Rising like a phoenix from the ashes of the 2008 recession, the challenger bank was born. In essence, a challenger bank is any new bank that comes along with the intention of snagging customers from the top branches out there. In the UK we’re talking Barclays, Lloyds, HSBC, and the Royal Bank of Scotland.

After the financial crisis of 2008, people’s trust in the big branches started to waver. In acknowledgment, the government passed a bill promising to reform financial regulation while facilitating competition in an industry that had become ‘too concentrated.’ Today, a new substara of banking is headed by the likes of Monzo.

I vividly recall the first time I spotted a shiny new upstart branch back in 2012.  Lit up like a beacon, the Metro Bank in its bold blue and red signage arrived on the high-street and really shook up the industry. Offering working hours of 8am to 8pm, all-week opening times, deposit boxes for bling and sensitive documents, and a fresh-faced approach to customer service – complete with doggy water bowls and customer toilets – it proved one of the first steps in revolutionising banking forever.

Now in 2019, the brick and mortar experience looks to be giving way to an entirely digital one for most Gen Zers. As with everything for them; from shopping and research, to gaming and communication, convenience and ease of access is of paramount importance. Banking is no different. It’s priceless, if you will.

What are the benefits for Gen Z?

According to a study conducted by Crealogix in 2018, one in four people under the age of 37 in the UK use a digital-only bank, while a third claim to possess two or more challenger accounts for different purposes. The general consensus among young people in particular is that challenger banks like Monzo make the experience of managing finances far less arduous day to day, allowing users to forgo frequent visits to busy branches and lengthy phone calls.

Challenger banks seem more human and empathetic, compared to imposing high-street institutions. I can vouch for that too, my local tellers don’t make a fuss when I pop in to see them. I have to queue and everything, it’s the height of rudeness.

Major feature that entice young people to make the switch are budget forecasts and instant notifications. Mobile banks will actively send notifications to project whether customers are on course to run out of money before their next payday, or to tell them they’re burning through too much cash to achieve a personal goal; such as monthly rent or holiday money.

Some even have a feature that will transfer earnings into a savings pot after a selected threshold is reached, so owners will need to check their accounts before agreeing to bougie nights out.

Nearly half of Crealogix’s 2000 study pool revealed that the ability to immediately freeze and unfreeze lost or stolen cards was a big influence in sealing their decision to download mobile apps. Now, as someone who is frankly too flippant with their plastic, this appeals massively to me. I happened to lose my phone during blurry Halloween celebrations and changing the PIN to get into my online banking profile on my new phone was an absolute nightmare. Again, mobile banks have made the process of changing PIN far less restrictive and drawn out, raising obvious security concerns for some, but Gen Z seem to dig it.

There are no extra charges for spending abroad either, and considering Gen Z’s inherent love of travelling, this is a serious string to mobile banking’s bow in the race to land young customers.

Are conventional banks fighting back?

You’d bet your bottom dollar they’re challenging the challengers. Gen Z will soon make up the largest demographic cohort with 32 percent of the global population, overtaking millennials who currently make up around 32 percent. As a result, conventional banks need to constantly innovate to ensure they stay relevant in an increasingly digital landscape.

For obvious reasons, regular banks must remain stringent when it comes to user security, but the changing of the times also requires them to focus on reaching feature parity with the young bucks (pun intended) if they’re to survive. On that front, the gap appears to be widening all the time.

What regular banks do have on their side is their long-spanning success and general reliability. While it’s something of a blanket statement, people do generally trust big banks again and the consistent numbers show that. While one in ten new accounts are with a digital-only bank, less than a quarter of those are being utilised as primary accounts. There is yet another hefty caveat for physical banks again though. Gen Z are undeniably less concerned than older customers when it comes to having a physical place to store their money, and they’ve yet to develop any real bank loyalty. Therefore, the fact big banks are largely tried and true doesn’t hold water with them.

In conclusion

There’s no doubting that the future of banking is going to become more and more accessible in the digital landscape, thanks to Gen Z. Conventional banks will have to keep pace with mobile banks to stay relevant in the long haul, and the steps they’ve already taken indicate that they’re willing to do so.

Gen Z will demand that banking be equated to other industries such as fashion, entertainment, and fast food, in terms of user accessibility and user-friendliness. The functionality of online apps at the moment still have a ways to go in that respect, but having mobile banks hot on the heels is all the persuasion big banks need to continue innovating for the best possible experience.

For now, the presence of challenger banks is only a positive influence then. Free to download apps are not only offering us more control over our finances than ever before, they’re also giving us a gentle shove towards the ultimate goal of never having to stand opposite a moody teller in a physical bank branch ever again.


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