UK consumer survey report,

CREALOGIX January 2019

Banking challengers: what’s attracting new users

2 3

The CMA91 – the nine biggest banks in the UK by market share – were targeted by

regulators after the 2008 financial crisis as requiring more competition so that the

choice and value of services for consumers would improve in response to fairer mar-

ket forces. The extreme concentration of market share has been a major driver in the

UK for the accelerated adoption of open banking regulations and enablers, based on

PSD2.

Surprisingly, despite dismal user approval ratings, the CMA9 actually grew in market

share over the past decade, with just six of them at times representing up to 90% of

the UK current account market2.

In this context it has always been a bit of a question mark whether any kind of neo-

bank or challenger bank could make significant inroads as a genuine competitor for

the big incumbents.

We believe the competitive threat for leading banks is building fast. Challengers, re-

inforced by the market-wide shift in consumer expectations that they are driving, may

deliver a commercial shock to highly respected brands which have not sped up their

technology strategy fast and early enough.

First, we can look at the published user figures from some of the prominent digital

challengers:

Our survey (see below in this report) reflects a story of rapid user growth for challeng-

er banking brands. Mobile-first challengers including Monzo, Starling, and Revolut

registered statistically significant percentages of customers among our respondents

even though they have been established no more than three years.

There’s still a long way to go to reach the volumes of the big banks: for comparison,

Barclays state3 they have 24 million customers, of which 4.8 million are “digital only”.

So far, the absolute numbers of customers of digital challengers may not impress the

biggest banks. However, the growth rates should concern incumbents. It would be

strategically negligent to ignore changing customer preferences, and assume “it’s not

our customers abandoning us” just because these customers are not visibly closing

accounts.

What if many of the people attracted to open challenger accounts are simply keeping

their old high street bank accounts “zoned out” in the background? The erosion of

incumbent’s market share may be significantly understated.

Monzo Revolut Starling Bank N26

Banking

licenced in 2017

Customers: 1,275,000

[December 2018]

Launched in

the UK 2015

Customers: >1 million in

the UK and >2.25 million

globally [July 2018]

Banking licenced

in 2017

Customers: 320,000

[November 2018]

Beta entry

to UK market in

October 2018, with a

waiting list of over

50,000

1 CMA: Competition and Markets Authority; CMA9: AIB Group (UK) plc trading as First Trust Bank in Northern Ireland, Bank of Ireland (UK)

plc, Barclays Bank plc, HSBC Group, Lloyds Banking Group plc, Nationwide Building Society, Northern Bank Limited, trading as Danske Bank,

The Royal Bank of Scotland Group plc, Santander UK plc (in Great Britain and Northern Ireland).

2 FCA / GhK “Concentration levels in retail banking in GB measured using market shares of the largest six firms since 2000” – Strategic Review

of Retail Banking Business Models, June 20183 Fintech Connect (event talk), London December 2018

The challengers are here

4 5

Once reluctant digital banks transforming

into fast followers

Everyone who can deliver on a digital

roadmap is a contender

CREALOGIX UK banking users survey

1

2

3

4

5

There are signs that product owners in the some big UK banks are aware of the val-

ue of tracking the challengers. For instance, at the end of 2018, Barclays launched

two new digital banking features: the ability to freeze your bank card via their app if

you’ve lost it, and the option to block yourself from gambling transactions. What both

these welcome features have in common is that they were pioneered by mobile bank-

ing challengers months before Barclays’ well-advertised launches made headlines.

The good news for consumers is that we are now entering a time of rapid creativity in

retail banking. Customers are voting with their feet, and all the players in the market

are becoming aware of the competitive value of good user experience design. On the

one hand, it’s much easier to lose customers of many years’ standing: on the other

hand, it’s not that difficult to imitate the attractive features of competitors and im-

prove on them, keeping customers loyal and attracting new customers from an active,

app-store style of market.

While banking challengers lead in design, well-established financial institutions still

have enormous advantages. Established banking and wealth management brands

have decades - in some cases centuries - of trust, proven operating stability, efficien-

cies of scale, and all-important customer financial history.

While a 100-year-old bank can study Monzo and copy a good mobile app feature

within a matter of weeks, the same cannot be said the other way round for generat-

ing long-term loyalty and brand value. Established financial brands can rapidly rejoin

the customer experience race, using technology to exploit and amplify their existing

strengths.

In this survey report, we look at this question of preserving and building loyalty in

the increasingly competitive, mobile-first UK banking market.

We expect the leading banks to continue a customer experience strategy of fast-fol-

lowing challengers. Fast-following is not just a strategy for the biggest banks: the

mid-field in the UK4 includes second tier banks, building societies, private banks, and

wealth management firms with banking activities. All of these financial institutions

can benefit from emulating the customer-centric design innovations of the banking

challengers.

In this latest consumer survey, our team set out to gain insights into whether people

are often “in the market” for a new bank account, how popular banking challengers

are and why, and whether opening a new bank account means switching away from

an older one.

In this survey we set out to determine:

Are consumers active in opening new bank accounts?

What might attract people to open a new bank account?

What proportion of people have opened accounts with mobile-first challengers?

What do users of banking challengers say that they like about them?

When people open new bank accounts, do they close their old/previous account?

4 The UK FCA regulates around 650 UK and EEA banks, building societies, and credit unions (making up 500 of this number) which supply retail

banking services to personal and small business customers.

Methodology

This consumer study was undertaken by Censuswide

between 7-12 November 2018. It interviewed 2,000

18-65 year olds in the UK who currently have a bank

account.

6 7

Key finding 1: There’s an active market in

opening new bank accounts

The young are the most active…

Gen-Zs are the most avid new bank account openers, with almost 80% having opened

a new account in the past 5 years, and almost 40% of these Gen-Zs have opened more

than one.

Gen-Zs are the most likely to keep hopping, with 81% saying they would consider

opening another bank account in the next 3 years (versus Millennials at 68% and 54%

for all other respondents aged 38 or over).

…but it’s not just the young

Even people aged over 55 are still opening new bank accounts: almost one in three

have opened a new account in the last three years, and of these 40% opened more

than one.

Are consumers active in opening

new bank accounts?

Our findings: yes, consumers – particularly younger generations

– have a track record of trying out new bank accounts, holding

multiple accounts, and are open to trying out even more new

banks.

of respondents have opened at least one

new bank account in the last 5 years

of respondents say they would consid-

er opening another bank account in the

next 3 years

44%

62%

8 9

We presented respondents with the following

features:

Temporarily lock card

The most popular feature across all age

groups is the ability to lock and unlock a

bank card if it's temporarily lost, with 32%

of respondents saying such a feature would

make them more likely to try out a new bank

account.

Crypto engagement

16% of Gen-Z and 10% of Millennials said

they would be more likely to open a new

bank account if it offered the ability to trade

cryptocurrencies instantly within the bank-

ing app.

Key finding 2: Mobile banking provides

plenty of opportunities

to attract new customers,

and incumbents can learn

valuable lessons from the

challengers

What might attract people to open

a new bank account?

Our findings: app features are highly significant in attracting

new users to try out a new bank account, and perks play a big

role too.

of people responded that one or more

specific mobile banking features would

make them more likely to try out a new

bank account

are the most likely to be motivated to

try out a new bank account based on

mobile app features

Gen-Z and Millennials

60%

83% 76%

10 11

Simple challenger features attract new users

More than one in five people said these other features could attract them to try out

another bank:

a quick visual

summary of how

much you've spent

today

payment

notifications in

real time

change your

bank card PIN

instantly

Banks have programmes to attract new customers with switching rewards, but chal-

lengers are going a step further, offering rewards and perks based on a premium

subscriber model. We picked some of these innovative offers and asked survey re-

spondents if they would find them attractive enough to try out a new bank account.

Premium perks

of respondents would consider paying a

monthly fee for a bank account if it offered

them at least one perk (see below for the

most popular)

Gen-Z (at 70%) are most likely to consider

a bank account with monthly fees based on

attractive perks

53%

70%

Our guess is that consumers have become used

to rewards from credit cards, while increasingly

valuing bundled premium memberships such as

Amazon Prime and Netflix, making the concept

of a premium/reward bank account a natural fit.

Why would consumers pay for a premium

bank account?

12 13

Free stuff

Among people who said they would consider a premium bank account based on

perks, the most popular are cash back on shopping and worldwide travel insurance,

picked by 59% and 32% respectively.

Demographic perks

Gen-Z are attracted by gym membership and concert tickets (28% and 25% picked

these perks as enough to make them consider paying a monthly fee for a bank ac-

count). Gym membership is also a popular idea among Millennials (20%), followed

by reward points and air miles (18%). Gen-Zs are 40x more likely than over 55s to be

attracted by a bank account offering early access to new gaming releases. The over

55s are more likely to pick travel insurance, airport lounge access, and tech/gadget

insurance as perks attracting them to consider a bank account with fees.

Personalisation a blind spot for banks

Personalisation means better relevance for communications and

offers received by customers.

When it comes to personalisation in banking, though, it’s hard

to see how the financial institutions could achieve this without

knowing their customers:

Less than one in ten UK consumers recall being asked any-

thing about their lifestyle or purchasing preferences by their

bank over the past year.

The opportunity is clear: banks can become more competitive

by improving personalisation in their service design, perks, and

product offers – and this begins with learning more about cus-

tomers.

To become active in personalisation, banks need to get better at asking custom-

ers to self-identify their preferences, and opt in to things that they find interest-

ing and beneficial. Leaving artificial intelligence and clever data analysis to one

side for a moment, banks can simply use direct questions, feedback forms, and

quizzes so that customers disclose what they want to.

To get more active in personalisation, a modern, highly customisable mobile

banking user experience platform is a must-have, enabling flexible, ongoing col-

lection of preferences and feedback.

Gen-Zs and Millennials are more than 7 times as likely to recall being asked

personalisation and lifestyle questions by their banks.

Why are younger people more likely to recall being asked personalisation ques-

tions by their banks? Simple, it’s because they’re the demographics most active

in mobile banking, and mobile banking is where modern, customer-focused user

experience design gets implemented first.

Premium perks

cash back on

shopping

worldwide

travel insurance

gym

membership

concert

tickets

airport

lounge

access

air

miles

travel

insurance

early

access to

games

of survey respondents agree they would

be more likely to try out a new bank ac-

count if it provided personalised features

based on their preferences and lifestyle

This jumps to over 70% among Gen-Zs:

personalisation is highly important to

the younger, digitally demanding gen-

eration

46%

70%

14 15

Revolut

In the 55-65 age group, of the respond-

ents who have a challenger bank account,

the most popular is Revolut (30% of the

group).

Monzo

The most popular challenger bank among

Millennials surveyed is Monzo (22% of Mil-

lennials with a challenger bank account),

while Starling Bank and Revolut are tied for

first place among Gen-Zs (22%).

Gen-Z Millennials 55-65

Starling Bank

Across all generations, the most popular challenger

is Starling Bank, with 4% of respondents claiming

to have an account.

Key finding 3: Are the challengers coming?

Actually, they’ve already

arrived

What proportion of people have

opened accounts with mobile-first

challengers?

Our findings: we surveyed people who have at least one bank

account in the UK – a significant share – 14% – say that they

bank with at least one of the best-known challengers.

14% of respondents use at least one challenger bank

Adoption is highest among Gen-Z at 26% of respondents, which

makes them over four times more likely to use a challenger bank

compared to the oldest age group surveyed: 6% of 55-65 year olds.

26% of Gen-Zs have a

challenger bank account

22% of Millennials with

a challenger account use

Monzo

4% of our respondents have a

Starling Bank account

Even though N26 only

launched in beta in the UK in

October 2018, 3% of Gen-Zs

and 2.5% of Millennials sur-

veyed say they have an account

Popular brands

S

N26M

16 17

Key finding 4: Challengers have smart

branding on their side but

the heart of their appeal is

ease of use

What do users of banking

challengers say that they like about

them?

Our findings: the overriding theme is ease of use. Survey re-

spondents recalled many specific app / service features, in pref-

erence to traditional themes such as trust or reputation of the

bank.

We asked challenger bank customers what they liked best about their account, in their own words.

Many comments focused on contrasting challenger banks with perceived shortcomings of traditional banks:

The majority of comments mentioned fundamental benefits or features related to their mobile banking apps, rather than commenting about (say) interest rates, customer service, or range of financial products:

„no harsh charges“

„modern“

„no branches“

„less fuss“

„very simple to set up“

„cool“

„modern and different to the

traditional banks“

„accessible, clear, informative“

„convenient“

„user friendly“

„instant access“

„instant notification of transactions“

„always available“

„fast“

„speed, transparency, flexibility“

„just simple“

18 19

The key to customers’ hearts: ease of use

Easy...

One theme emerged as the most common thing

people said they like most about their challenger

bank: things being easy:

...to sign up

...to check my

balance any time

...to manage

my money

„Easy to see how much

I’ve spent“

„Easy login“

„The easiest bank account

I’ve ever used“

„Sending money

more easily“

„Lock my card easily if

I lost it“

„Incredibly easy, no

hassle“

„The easiest bank account

I’ve ever used“

20 21

When opening a new current account, there is no obligation to close any previous ac-

count, and no particular downside to leaving it open. In fact, the perceived downside

is in the hassle of closing down what is likely a long-standing banking relationship in

order to commit to a new and unfamiliar new provider.

Avoiding switching or closing, and instead simply “zoning out” of an old account, is a

completely rational consumer behaviour. As time goes on it will be increasingly unu-

sual to have only one bank account, and more people will become comfortable with

the idea of exploring alternative ways to manage their money, once they realise that

it’s easy to try out new apps and services without any particular commitment.

Thank you, next current account

As we’ve seen, Gen-Zs are highly active in trying out new banks: not surprisingly, this

leaves them with a trail of ex current accounts: 19% have two or more “zoned out”

banking relationships.

Millennials are more than twice as likely as the over 55s to have more than one “zoned

out” bank account.

Marketing to Gen-Zs and Millennials means talking to a digitally savvy audience.

Established financial brands will need to approach younger generations with features

and benefits that help them win back customers who are already familiar with many

competing offers.

CASS: full switching is not the norm when

starting a new bank account

Only 17% of UK consumers have used the Current Account Switching Service. This

is not necessarily from lack of awareness: 68% of UK consumers have heard of the

service.

Only 13% of Gen-Zs have used the Current Account Switching Service even though

79% have opened a new bank account in the last five years and 40% of those opened

more than one.

Although not as extreme, the same trend applies for Millennials: just 20% have used

the Current Account Switching Service versus the 51% who have opened a new bank

account in the last five years and 40% of those opened more than one.

Key finding 5: People try out bank accounts

without committing and

routinely have more than one

bank. Should we redefine

“switch” and “leave”?

When people open new bank

accounts, do they close their old/

previous account?

Our findings: opening a new bank account doesn’t mean clos-

ing your old account. People routinely have two or more bank

accounts.

44% of people have opened

a new bank account over the

past 5 years, and of these

40% opened more than one

bank account

More than half of all UK con-

sumers (57%) have at least

one old bank account they

no longer regularly use, but

have not closed

Out of people who have heard

of the Current Account Switch-

ing Service, only a quarter have

used it

The highest number recorded

in our survey was someone

with nine bank accounts

24% of UK

consumers have two

or more “zoned out”

accounts? 9

?

22 23

Jo Howes, Commercial Director, CREALOGIX UK

“A bank may consider an account dormant if it hasn’t been accessed in, say, 15 months.

But in reality a bank account that you haven’t accessed within the past 15 days is probably

not your main account. If banks narrowly focus on certain KPIs tracking how many bank

accounts lapse into being formally inactive, or are outright closed by customers, they could

be missing the wider, accelerating signs of their user base zoning out. In the era of con-

sumerised digital banking, the KPIs to watch are monthly active users, average interaction

rates, and engagement levels.”

Zoned out accounts

What happens to old bank accounts when people start using a new account? As we’ve

seen, people don’t necessarily close an account.

If you don’t make an all-out current account switch, then your “old” bank account is

still there: it’s where you get your salary paid into, and you have all your bills, standing

orders, and direct debits set up from it, as well as your recent transaction history. You

might not want to change (or lose) all this, all in one go, even after you have started

using a new bank account for daily money management.

If you open a new bank account just to try it out, it's more natural for your depend-

ence on it to grow gradually. Until you start using all the services of your new bank,

such as savings, credit, and personal finance tracking, you are likely still using your

previous accounts for these things. In other words, it's not easy for your old bank to

detect that you are "switching away".

As the range of things you do with your new account grows, your satisfaction and

loyalty grow too. Again, it's hard to define an exact moment when your old bank

"lost" you as a customer, but as you log in to use your old account less and less, your

engagement levels drop closer and closer to zero.

Open banking access make it more likely you'll postpone actually closing an old ac-

count. You can “pull in” all your up-to-date balance and transaction data from any

of your accounts into the one you are most familiar and comfortable using on a daily

basis.

So for your old bank accounts, there may be no single, conscious "switching off" mo-

ment, but more of a “zoning out” process. You haven’t exactly broken up with your

high street bank, but you’ve put them somewhere they are not really getting any of

the action. Your old bank account may still be counting you as a customer, but in re-

ality you don't have an active relationship.

For incumbents losing customers' attention and data in this way, it translates directly

into fading profits. To remain relevant and profitable, banks have to compete actively

for engagement, not only rely on traditional statistics about how many account hold-

ers they have.

24 25

Conclusions

First, people now approach opening a new bank account as easily as installing a new

app: because it really is as easy as that with the mobile-first challengers. Banks and

financial services which are not available to consumers in an app store are missing out

completely on the main arena in which to win market share.

Installing an app = becoming a customer

In order to compete with challengers, it’s not enough just to have a mobile banking

app: new users must be able to self-sign-up from zero to fully enabled, quickly and

simply, purely through the app-install user journey. A user onboarding journey that,

for example, requires the user to go into a branch or conduct a phone call, is not as

convenient as the fully mobile UX of challengers, and therefore not competitive.

Departure of banking customers may be hard to detect

Secondly, we realised banks may be looking at the wrong indicators to get a sense of

the level of competition they face from the challengers.

Even if they are aware of the Current Account Switching Service, most people don’t

use it. People are perfectly content to have multiple old bank accounts open but

not in regular use: it’s a perceived commitment and hassle formally to close a bank

account, with no particular advantage to doing so and no particular downside to

gradually zoning out.

Banks may be unrealistically complacent if they feel that the numbers of consumers

“switching away” or “closing down” accounts is not that high. Loyalty is not a binary

thing: users of a new bank may gradually decrease dependence on their old account

instead of committing to a complete switch. Even after trying out a new challenger

bank account, people may continue to experiment with other banking and payment

services, possibly skipping to yet another new bank account. As consumers become

more aware of the range of innovative and engaging options available from challeng-

ers and fintechs, any older, only minimally digital bank will be left far behind in their

estimation.

Engagement leads to value, and this requires good UX

In this poly-banked market a bank would be unwise only to count the number of open

bank accounts as a primary KPI: instead they should be looking at engagement met-

rics such as frequency and depth of usage, as well as becoming more active in inviting

users to submit feedback and reviews.

While there are virtually limitless possibilities for future innovation in providing con-

sumer financial services, digital leaders need to keep it simple in what they deliver to

end users. We believe that to regain a competitive position in the market versus the

challengers, established brands simply need to deliver the basics better.

Our survey has shown that consumers love challengers because their banking apps

and services are easy to use, and deliver features that make common money tasks

easy to solve. Because of their customer-centricity, challenger banks are able to iden-

tify and deliver new features that make sense to end users: because the feature is a

solution for something people want to do, it doesn’t need to be explained or “sold”

in order for people to adopt it.

We believe the same approach can be taken by any bank, building society, or wealth

management firm, provided with the right technology and a willingness to listen to

customers.

People will appreciate every feature that makes their financial life easier, and there’s

nothing stopping every financial brand from listening to their customers and finding

out what features and enhancements they could provide.

Because of their deeper experience and longer-standing user bases, established fi-

nancial institutions ought to be able to seize back the initiative from the challengers,

attract new users, and keep their existing account holders happier so they don’t “zone

out”.

As soon as we looked at consumers’ habits around

opening new bank accounts, two critical things

became clear

26 27

CREALOGIX Digital Banking Hub

CREALOGIX Digital Banking Hub is our principal solution set, providing a comprehen-

sive architecture to support the future of omnichannel open banking. The solutions

we create enable banks, wealth management firms, and other enterprise financial

services deliver benefits of digital transformation in ways that directly benefit end us-

ers, and provide a basis for unlimited future innovation and digital market leadership.

In contrast to other providers, solutions from CREALOGIX are natively designed for

open banking, allowing internal, external, and third party systems to be integrated

seamlessly.

Find out more here:

crealogix.com/uk/products/crealogix-digital-banking-hub/

About CREALOGIX

The CREALOGIX Group is a Swiss Fintech 100 company and is among the global mar-

ket leaders in digital banking. CREALOGIX develops and implements innovative fin-

tech solutions for the financial institutions of tomorrow. Using digital solutions from

CREALOGIX, banks, wealth managers, and other financial institutions can better re-

spond to evolving customer needs in the area of digital transformation, enabling them

to hold their ground in a very demanding and dynamic market, and remain ahead of

their competitors. The group, founded in 1996, has more than 700 employees world-

wide. The shares of CREALOGIX Group (CLXN) are traded on the SIX Swiss Exchange.

Working with us:

Decades of industry knowledge,

leaders in digital banking engagement

platforms

Global enterprise presence, local

hands-on expertise

Agile approach, flexible delivery

options, fast time to market

Open banking native solutions:

extensible, modular product

selection

Discover the Future

How can we help you shape the future of banking?

Contact us!

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Applying the expertise and experience of over 20 years delivering digital financi-

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help you attain and maintain a leading position in your market.

Follow @CREALOGIX_en on Twitter and join in the discussion using the hashtag

#BankingChallengers

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