The UK’s challenger banks have been snatching up market share for years, leading to massive funding packages and sky-high valuations. The excitement’s been enough to inspire a long list of hopefuls looking to claim their corner of the fintech renaissance, but late arrivals may be in for an unpleasant surprise.
Evidence is mounting to suggest that the gold rush has ended. Many of the smaller fintech firms are already in talks for consolidation as high-level marketing obstacles compound to slow growth. All but one of the digital banks have yet to attain profitability; most have operated at a loss in the interest of market penetration, with plans to monetize customers through commissions-based digital marketplaces. Even that depends on a critical mass of customers, and many marketers are struggling to hit their growth targets. The good news is that these obstacles are not insurmountable.
For digital banks, issues of brand awareness, unperceived value and antiquated feature dependency point to the importance of offering customers access to cash withdrawals, deposits and payment options. By meeting customers where they’re most comfortable, digital banks can tap into new and affordable market segments, driving growth while their competition wastes resources fighting over the same audience, day after day. It all starts with understanding the state of modern banking customer mindshare.
Out of a total population of 65.64 million, as little as 7% of UK adults have ever heard of the smaller digital challenger banks. It’s an especially daunting figure, considering the fact that their marketers are up against entrenched financial institutions, many with corporate identities dating back centuries. Other emerging tech verticals have the luxury of marketing net-new products that haven’t had time to accumulate bias. Fintech and digital banking marketers, on the other hand, compete against galvanized brand dynasties in addition to their fellow startups. Combined with the limited marketing budgets inherent to startup life, digital banks have their hands full just trying to get their name out there. This necessitates a laser-focussed understanding of their target audience.
With total customer count serving as a critical growth metric, digital banks are rightfully targeting audiences they expect will be most receptive to their tech-forward message. Fiinu, a recently founded UK fintech startup, thinks that millennials, young adults, and consumers with lower credit scores are the ideal fit for its app-based offering. It’s a sound strategy that almost all other digital banks share, but therein lies another problem. As more marketers contend for the same audience, marketing efficiency drops.
According to Victor Basta, the managing director of Magister Advisors, “Dozens of digital banks are going after the same target audience of well-off, digitally-savvy urban professionals, all at the same time. Inevitably this pushes customer acquisition costs higher, with diminishing returns on overall investment.” As competition heats up and costs continue to rise, marketers are desperate to find ways of resonating with alternative audiences, but that comes with its own unique challenges.
The majority of older banking customers are either uncomfortable, unaware or unconvinced of online banking’s benefits. Behavioral data from Lloyds Bank found that 56% of call center and branch activity in account holders age 50 and above were for simple transactions like checking statements, personal account transfers or payment status updates. Lloyds Bank, which offers customers a digital banking option, rightfully points out that “all of these could easily be done online, saving people time and money.”
Further evidence suggests that it’s not just older demographics that still prefer the use of branches, ATMs and/or cash when managing their finances. Data from management consulting firm Accenture shows that even younger customer segments still visit branches to complete tasks that could easily be handled online, including payment setup, information gathering, changing account details and opening/renewing accounts. Ask younger customers directly and you’ll hear that while they “love the instantaneity” of a digital-only bank, many still maintain accounts with branched institutions that they can visit in case of emergency.
Evidence suggests that as competition over the affluent millennial audience reaches its peak, digital banks will need to expand their service offering to include incumbent financial technologies in order to capture the market share they need to survive, and that includes cash.
In E-commerce alone, it’s anticipated that $167 billion USD in payments will be delivered through cash worldwide in 2019. In 2015, UK citizens completed more than £216.1 billion in cash transactions, representing 11.6% of all transactions nationwide. Gaining access to the financial infrastructures that power cash-based commerce, however, isn’t easy. Disparate systems have been developing in isolation for decades, meaning digital banks would need to sink massive resources into market penetration and network development. Thankfully, Rapyd can help.
At Rapyd, we give digital banks turnkey access to the millions of customers around the world still heavily invested in cash and other traditional payment methods, allowing them to continue growth beyond the now saturated millennial market. Our secure cardless cash solution empowers customers to conduct withdrawals, and deposits using their mobile phones through any of our 17,000 access points in the UK and more than a million worldwide. Adding Rapyd to your product requires only a single API/SDK integration and has zero impact on existing user experiences.
We believe there is no single path to solving electronic payments but together we can make it easier for digital banks to serve their existing customers, gain market share, and better monetize their customer databases.
Click here to learn more about how we help digital banks overcome growth challenges and tap into market segments off-limits to their competition.