Challenger banks need a purpose to become more than just banks
22 March 2016
MaryLou Costa, Head of Content
When Mondo crashed the Crowdcube site in February thanks to overwhelming demand for its £1m fundraising campaign, it gave us a glimpse into the future of banking – a world where banks are tech-savvy transparent, trustworthy, and talk like real people, not corporate suits.
That is the vision laid out by Mondo and its peers – Atom, Tandem, Monese and Loot, among others –a posse of upstarts that have stormed the market with a youthful, energetic force.
But this new unorthodox approach to finance is fast becoming the status quo. If everyone is rewriting the rulebook, with digital savviness, straightforward offers and cutting edge branding now mere hygiene factors, how can challenger banks actually make their mark? With innovation now the norm, how can these new banking brands create genuine USPs to build long-term loyalty and success?
The legacy of the challenger banks will lie in how they evolve from defining their ‘unique selling point to their ‘unique strategic purpose’ – adding value to their audiences to lay claim to that highly coveted sweet spot in the market.
Moving beyond Millennials
Some challengers are, on the face of it, finding their purpose by focussing on a distinct target audience, filtering down the broadbrush ‘Millennials’ group that the challenger banks overall seem to be going for. Monese, for example, allows customers across Europe to quickly open a UK account and offers cheap European money transfers – perfectly positioned for immigrants and expats.
Loot, on the other hand, is launching in partnership with universities to target students with key features including allowance-based spend alerts and spend comparisons with friends. It’s also worth noting Oaknorth, which came onto the scene last year, and is aimed squarely at entrepreneurs whose businesses are too small to attract the support of larger banks.
So far, so many positive column inches and an apparent ‘strategic purpose’ to boot. These strategies are a straightforward, brilliant way to carve out a unique offering against Mondo and Atom’s digital native catch-all.
But some may question the longevity of Loot and Monese’s approaches. To be profitable, they require both a high level of customer value and customer digitalisation, which don’t always go hand in hand. Loot and Monese are, perhaps concerningly for investors and reassuringly for the big banks, geared towards a highly digital, low value audience. Their success will rely on maintaining an ongoing stream of new customer acquisition, with high churn levels built in.
With a fixed age-driven loyalty ceiling, this treadmill turnover business model would not be deemed by many as ideal. For that reason, audience alone does not define a ‘unique strategic purpose’.
Why Loot, Mondo and Tandem are on the money
But the people at Loot know this. So do those at Mondo and Tandem. What they are doing to define their purpose and brand identity outside that of pure banking is compelling stuff.
Loot aims to build critical mass amongst students across the country, then monetise that audience by offering them targeted discounts and offers from food, drink, retail and clothing brands, through the app.
Leveraging customer data to add value is a running theme in defining purpose, as Tandem is also planning to offer its members relevant deals on utilities and groceries. The beauty of this model is not just the additional revenue generated by partnerships, but that customers will have already opted into sharing data at the beginning. If messaged, managed and executed correctly, customers should find value in what they are being targeted.
Mondo, meanwhile is not just about the tech, but the partnerships. The app overlays with TFL, Uber and investment service Nutmeg, blurring the lines between finance and lifestyle but embedding itself in the consumer mind and pocket.
Loot, Mondo and Tandem understand that partnerships are the gateway to not just purpose, but future growth. Loot, for example, is also in talks with RBS and two other big banks about a partnership to launch a Loot branded account. If it’s successful, you can assume this would lead to a customer migration partnership between the two companies, resolving the customer lifecycle ceiling issue.
From bank to brand
The challenger banks that will stand the test of time will be those that continue to innovate around a truly unique way of working, and who can define their purpose and value to become core to a user’s life. The ones that will succeed will go above and beyond the call of banking to become overarching tech and lifestyle brands.
It will not be enough to be a better bank, or a bank like no one has seen before. They will have to be more than a bank, as Mondo, Tandem and Loot are delivering on already.
Image sourced from flanck.