16 February 2015

Creative thought: How ‘challenger’ banks could actually challenge

Since the recession, the retail banking scene has become a bit of a mixed bag…

The government’s intention to create and encourage competition, both by forcing the big four (Barclays, HSBC, Lloyds Banking Group and RBS) to set up their own challenger banks and relaxing regulations in order to encourage newcomers, has produced little in the way of real change for the customer.

Lloyds produced TSB as part of their repayment deal with the government, and it looks as though RBS are about to follow suit with Williams and Glyn – a brand it consumed as part of a merger deal in 1985.

The first genuinely independent startup came in the form of Metro Bank. In 2010 it was the first organization to gain full banking status in over 100 years – a sign of how little competition has changed in the sector in living memory. Metro has grown rapidly in the south but has yet to see a profit.

Another challenger, Atom Bank intends to differentiate by offering online only services. This will enable it to keep IT infrastructure and overheads down.

Despite this, the big four are largely unaffected by the challengers in terms of market share because they are chasing niches of the market by specializing, or offering single channel solutions. While banking remains largely free to retail customers, challengers are going to have to do much better to compete convincingly.

The customer angle

To many consumers the word ‘bank’ carries only negative connotations, thanks to events in the recession. 

In 2012, the consumer group Which? found that over eight in 10 people think that banks have not done enough to change the banking industry to prevent another credit crunch from happening. 

Meanwhile seven in ten people say that the banking “culture” hasn’t got any better since 2007. And although retail banking is not directly linked with the financial crisis, consumers make no such distinction.

It is fair to assume then that, given the choice, customers would not put their money into banks at all. So incentivising them with better than ever customer service and online only solutions is just not enough to convince.

So, what should be done?

Clearly banks are going to have to either wait a long time, or make radical changes in order to clean their reputation. And challengers are best place to take change to market quickly.

The day of the bank manager as sage advisor is gone – replaced by credit score ratings and automated processes – but customers are still in need of advice, especially while the UK continues to recover from recession.

Progress is multi-facetted and difficult – but it must happen if challenger banks are to succeed. Here are a few suggestions:

1. Improve individual financial advice

In this observer’s opinion, banks are made up of a number of products – current accounts, mortgages, ISAs and so on. Users can go online and set themselves up myriad accounts and financial products more easily than ever before.

What’s missing here is advice on how to get the most out of those products. It takes a financial expert to navigate the shear breadth of products with a view to achieving the best possible setup for the customer.

Consideration should be given to using ‘wizard’-like processes, which ask a simple set of questions to establish financial status, appetite for risk and financial intelligence of the consumer. The answers to these could be used to build basic financial profiles and product sets, and assist the consumer to make considered and often difficult decisions when banking their hard earned cash.

Richard H Thaler and Cass Sunstein produced the book ‘Nudge’ in 2008, which argues that suggestion and gentle correction of consumer behaviour, including financial decision-making, can impact positively on quality of life and wealth. In fact David Cameron established the Behavioural Sciences Team (commonly known as the Nudge Unit) to tackle social issues, which is overseen by Thaler. The unit has been a great success in social change – areas such as organ donor registration, and it has recently established itself as a standalone social change company.

Advances in Economic Psychology seem largely overlooked by banks, a science it could benefit greatly from.

2. Go back to schools

Once upon a time, managing your finances was taught in schools – right down to writing a cheque and balancing your books. Such lessons are now rare, and future generations are set loose in a mostly alien commercial financial landscape, where massive debt in tuition fees and credit are now commonplace.

Never before has teaching our children about managing finances been more important.

In a palpable display of how out of touch banks are, Barclays have instead elected to teach children how write computer code – something that a tiny fraction of the population will actually find applicable in everyday life.

Banks should engage with schools, colleges and universities in order to ensure that the youth of today does not become the indebted of tomorrow.

3. Get real – only genuine cultural change will count

Over the past 18 months banks have been investing in new core messages in their advertising campaigns. TSB talked about a new type of banking (one that owes its parent £100m in IT bills); the Coop asserted its commitment to its Ethics and Values by showing images of an employee being tattooed with the phrase (the phrase falling on deaf ears as evidenced by falling deposits and current accounts).

Thanks to technology and changes to the amount of contact a bank may have with its customers, change in advertising slogans is the only real change customers are likely to experience.

Banks must invest in their culture – not merely instruct ad agencies to make them appear different. Behaviour must change, from the top team to the front line for it to be believable and genuine. This should be communicated, inside and out, in order to give it a ring of truth.

Customers should be engaged with, consulted, and their words acted upon if the closed doors of the great banks are to be considered a two-way entrance.


At the end of the worst recession in living memory, and while the public breathe a collective sigh of relief, banks have been afforded a unique opportunity to re-engage with their customers. Not in a teary-eyed 'good ol' days' kind of way, but in ways which are relevant in the new economy. It may be the challenger banks, however, that are better positioned to offer great customer service and product innovation on a very personal level. The big four have their work cut out for them then – they cannot sensibly talk to customers individually, and are therefore at a disadvantage.

It remains to be seen whether the challengers will step up to the plate.


Rocca. has worked with a number of the big four banks and challenger banks in brand, change management and service design.