# Why challenger banks need to capture the hearts and minds of today’s consumers to become the number one choice in the retail banking sector Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-07-07 Category: BANKING Category URL: https://financedigest.com/category/banking Meta Title: Challenger Banks: Winning Hearts and Minds in Retail Banking Meta Description: Discover how digital-first challenger banks can earn trust and stand out by offering exceptional experiences and a steady pair of hands in the face of financial URL: https://financedigest.com/why-challenger-banks-need-to-capture-the-hearts-and-minds-of-todays-consumers-to-become-the-number-one-choice-in-the-retail-banking-sectorhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-05-29t011938z1lynxmpej4s00ortroptp4turkey-russia-gas-payments-1736813784837-compressed.jpg) # **Why challenger banks need to capture the hearts and minds of today’s consumers** **to become the number one choice in the retail banking sector** _By_ **_Rebecca Crook,_** _Chief Growth Officer EMEA at CI&T_ Following the 2008 financial crisis, a whole host of new banks sprang up in the UK. They offered a fresh new approach to banking, making the most of advances in financial technology that traditional banks struggled to match. Many flocked to open new accounts with these digital-first challengers, with customer satisfaction and advocacy ratings high. Today, there are [20 million challenger bank customers](https://www.monito.com/en/wiki/top-three-challenger-banks-uk) but just [one in five](https://www.kearney.com/industry/financial-services/article/-/insights/how-convenience-innovation-and-trust-will-shape-tomorrows-banking) consider it to be their primary bank account.  So, the question is, why are the [rising stars of the retail banking](https://www.financedigest.com/the-rise-in-embedded-financial-products-is-the-new-norm-of-banking.html "The rise in embedded financial products:  is the new norm of banking?") sector viewed as second best? One theory is inertia. Many [open their first bank](https://www.financedigest.com/a-new-era-of-open-banking-is-here-a-look-at-the-future-of-payments.html "A new era of open banking is here: A look at the future of payments ") account as they reach adulthood, often on the recommendation of parents, grandparents, and elders. These ‘influencers’ tend to be more [strongly affiliated with traditional banks](https://www.financedigest.com/naturgys-profit-rises-on-lng-gains-soothing-shareholders-by-pietro-lombardi-madrid-reuters-spanish-power-utility-naturgy-reported-on-monday-an-88-jump-in-profit-for-the-first-six-months-of.html "Naturgy’s profit rises on LNG gains, soothing shareholders By Pietro Lombardi MADRID (Reuters) – Spanish power utility Naturgy reported on Monday an 88% jump in profit for the first six months of the year, boosted by strong earnings at its liquefied natural gas (LNG) business, which could help it to win over restive investors. Earlier this month, the company said it would increase its dividend floor through 2025 while trimming expected investment, as it sought to make rewarding shareholders a priority. Pleasing them has become a focus as Naturgy considers changes that could reshape the company and after arguments over the potential appointment of a chief executive. Naturgy’s first-half net profit jumped to 1.05 billion euros (.16 billion), boosted by its liquefied natural gas (LNG) business. Shares were down 0.2% in mid-morning trading, bucking deeper declines, in particular for Spain’s blue-chip banks and utilities after a general election on Sunday produced no clear winner. Renta 4 Banco analyst Angel Perez Llamazares said Naturgy performed better than expected, adding “cash flows also beat our expectation,” and debt fell more than expected. After natural gas prices hit record levels last year, Naturgy said a fall in procurement costs this year and hedging gains had boosed profits. In the first half of the year, the company “exceeded the objectives of operating efficiency, cash generation, investment materialisation and debt reduction,” Executive Chairman and CEO Francisco Reynes said. After rival Iberdrola named a separate CEO last year, Naturgy is the only large energy company in Spain to combine the roles of executive chairman and CEO. Earlier this month, the company raised the dividend floor to 1.40 euros a share, from 1.20 euros. Operating profit (earnings before interest, tax, depreciation and amortisation) is expected to reach 5.1 billion euros, compared with a previous guidance of 4.8 billion euros. It said it was targeting net profit of 1.8 billion euros in 2025. Naturgy also relaunched its plan to split regulated infrastructure operations and liberalised energy businesses into two listed companies. The project had been suspended after the Ukraine war disrupted energy markets and analysts are still sceptical. “We believe it is unlikely that Naturgy will be able to implement its asset split in the short term and it is also unlikely that a big change in the shareholding of the company would occur,” said RBC analyst Fernando Garcia. ( = 0.8986 euros) (Reporting by Pietro Lombardi, editing by Inti Landauro and Barbara Lewis)") and make recommendations accordingly. And once you start a relationship with a bank as a [young adult](https://www.financedigest.com/financial-literacy-for-young-adults-essential-money-skills-for-success.html "Financial Literacy for Young Adults: Essential Money Skills for Success"), there is often little motivation to change. Meanwhile, alarming news headlines about some of the world’s biggest contemporary banks may have damaged trust in [challenger banks](https://www.financedigest.com/the-rise-of-challenger-banks.html "challenger banks"). In the spring of 2023, the US suffered [three of its four largest banking failures in history](https://www.bankrate.com/banking/largest-bank-failures/) as First Republic Bank, Silicon Valley Bank, and Signature Bank all failed with combined assets of $556 billion. If traditional [banks can survive hundreds of years and numerous financial](https://www.financedigest.com/the-transformative-power-of-technology-in-banking-and-finance.html "The Transformative Power of Technology in Banking and Finance") crashes, why trust anyone else? So, how can digital-first banks build confidence and acceptance to [become the number-one choice](https://www.financedigest.com/nearly-half-of-banking-customers-say-they-are-missing-the-human-connection-in-banking.html "Nearly half of banking customers say they are missing the human connection in banking") for customers? ## **Make it all about the experience** Today, many of our day-to-day purchase decisions often boil down to price. But with most [banking services](https://www.financedigest.com/why-financial-services-firms-are-banking-on-behavioural-biometrics-to-beat-fraud.html "Why financial services firms are banking on behavioural biometrics to beat fraud") free to anyone eligible, it can be difficult to persuade customers to switch from their familiar banking provider. Instead, challenger banks can earn trust and stand out from their more traditional counterparts through experiences. Their agility gives them the [opportunity to grow their market](https://www.financedigest.com/broadening-horizons-exploring-diverse-opportunities-in-the-financial-markets.html "Broadening Horizons: Exploring Diverse Opportunities in the Financial Markets") share by pivoting faster than their peers to meet customers’ new, urgent needs. For instance, many [people are finding it tough to manage](https://www.financedigest.com/esbconnect-finalises-management-buyout-and-welcomes-in-a-new-age-of-people-based-marketing.html "esbconnect finalises management buyout and welcomes in a new age of people-based marketing") their finances as they battle the cost-of-living crisis. With their digital-first approach, challenger [banks are well positioned to build](https://www.financedigest.com/building-the-bank-of-you.html "Building the Bank of You") a 360 profile of a customer’s situation and take action accordingly. It could be recognizing who’s finding it especially difficult financially and offering free in-house advisors or [money](https://www.financedigest.com/minimalist-money-simplifying-finances-for-a-stress-free-life.html "Minimalist money: simplifying finances for a stress-free life") management tools to support them. Or identifying life-changing events, such as a house purchase, a baby’s arrival, or retirement, and tailoring support and personalizing offers accordingly. And technology remains a key differentiator. From advanced, AI-powered chatbots to automated online onboarding, hyper-personalization to multichannel engagement, offering services that meet and even exceed the expectations of [digitally native customers like Gen Z will mean challenger banks](https://www.financedigest.com/limited-support-for-central-bank-digital-currencies-in-global-investment-industry-survey.html "Limited support for central bank digital currencies in global investment industry survey") become the number one choice for younger customers as they grow into the dominant purchasing power generation. ## **Offer a steady pair of hands in the face of volatility.** Alongside outstanding experiences, challenger [banks](https://www.financedigest.com/two-speed-economy-in-sweden-central-bank-business-survey-shows.html "Two-speed economy in Sweden, central bank business survey shows") must also offer safety and stability—particularly with today’s unpredictable economy. Traditional banks are well versed in this, having fought off financial crises and crimes for decades. And while we’d expect tech-savvy challenger banks to be at the cutting edge of online safety, a [2022 FCA review](https://www.fca.org.uk/news/press-releases/review-weaknesses-challenger-banks-financial-crime-controls) found weaknesses in some financial crime controls. Fundamentally, protecting customers against threats from fraudsters and cybercriminals must be the priority for any [digital business](https://www.financedigest.com/the-digital-transformation-of-tax-filing-how-e-filing-revolutionizes-business-taxes.html "The Digital Transformation of Tax Filing: How E-Filing Revolutionizes Business Taxes"). So, challenger banks must maintain their trademark agility while upholding the same levels of security as their traditional peers. They need to invest in solid infrastructures underpinned by security and transparency. Not only will this reassure customers of the safety of their money, but also the longevity of their banking provider. ## **Doing the right thing for the right reasons** As we navigate a potential recession and the increasing challenges of [rising interest rates](https://www.financedigest.com/uks-berkeley-forecasts-20-drop-in-house-sales-as-interest-rates-rises-weigh.html "UK’s Berkeley forecasts 20% drop in house sales as interest rates rises weigh") for homeowners and those looking to get on the property ladder, it becomes even more important that challenger banks earn trust by doing right by their customers and maintaining a clean public image. It’s an area in which the traditionals have often fallen short, from the miss-selling of financial products to the hefty bonuses handed to bankers during wider [economic squeezes](https://www.financedigest.com/credit-squeeze-biggest-threat-to-economic-outlook-fidelity-international-says.html "Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says"). To set themselves apart, challenger banks should begin by re-evaluating their strategies so they only [target customers with products that they genuinely need](https://www.financedigest.com/eu-raw-material-targets-need-money-and-faster-permits-sector-chief-says.html "EU raw material targets need money and faster permits, sector chief says"). This shouldn’t be too much of a stretch, given their hyper-personalization [data capabilities, the huge technology advances available to them, and the availability of data generated by open banking](https://www.financedigest.com/asia-shares-edge-higher-wary-of-us-bank-data.html "Asia shares edge higher, wary of US bank data") practices. Successful brands are built on trust, and trust is gained by showing the customer’s best interests lie at their heart. This is where challenger banks can steal a march on the competition. With their digital-first mentality they can use their advanced technology to deliver meaningful, personalized customer experiences alongside a host of value-added experiences to look to [become the number one choice for today’s](https://www.financedigest.com/revolutionising-finance-exploring-the-impact-of-omnichannel-insurance-on-customer-experience.html "Revolutionising Finance: Exploring the Impact of Omnichannel Insurance on Customer Experience") customer. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---