Challenger banks are capitalising on the shift and appealing to app-centric Millennials
Forecasts suggest online banking will become more popular than visiting your local branch in the UK by 2021.
So-called challenger banks are a driving force in the shift, taking customers from long-established brick and mortar organisations.
Skipping out on a high street presence has allowed newcomers including Monzo, Revolut, Starling, and N26 to invest in tech which particularly appeals to the Millennial demographic.
70% of Millennials would consider opening a challenger bank account
Unlike a traditional bank, these app-only brands have no physical branches. Instead, everything is managed from customers’ phones. It’s possible to accept salary payments, make transfers, and set up direct debits, as with a traditional bank.
And on the off chance customers still receive cheques, these can be paid in at Post Offices and other retailers, along with cash.
According to a poll from financial consulting firm Penser, 70% of Millennials are open to using challenger banks as their main account.
The appeal for many are the innovative extras. These include Monzo’s ‘pots’, called ‘spaces’ at Starling. Customers can set up specific goals, like ‘Paris Holiday’ or ‘Car Fund’, set aside from their main money.
Meanwhile, Revolut offers multicurrency accounts. These are handy for anyone who accepts payments from abroad, and there are generous rates on foreign spending. N26 also offers free payments in any currency.
While most major high street banks offer apps, the features tend to be far more limited.
Trust remains a barrier
Penser’s survey cites “I don’t see the value” and “Don’t want another account” as among the reasons some people won’t make the leap.
When it comes to money, many consumers prefer to stick to what they know. Business Insider says higher trust in traditional banks are a stumbling block for challengers.
Deposits up to £85,000 are protected by the Financial Services Compensation Scheme (FSCS). But even with this guarantee, the failure of a bank is a major headache for its customers.
With challenger banks being new to the market, it remains to be seen how well they’ll fare over the coming years.
Just a few days ago, UK challenger bank Fidor announced that it’s shutting its doors following uncertainty in the market.
A worldwide trend
Challenger banks are far from just a UK-centric phenomenon. N26 and Revolut are heading to the US soon, while Kyash is set to be the first to open in Japan. CEO Shinichi Takatori is confident about the growth of the model worldwide in the years to come: “We have open eyes for globalization, it’s just a matter of when,” he says.