How challenging are challengers?
As new entrants threaten to disrupt the financial services industry, should the old guard be worried or learn from the intruders?
When the app-only Atom Bank was in the final stretch to its big opening in 2016, it sent postcards to all those who had pre-registered as new customers with a simple message of thanks for believing in the bank. Simultaneously, it ran a campaign on Instagram with images of the cards, and many recipients posted pictures of themselves with their thank you postcards.
Just over a year later, the bank had drummed up such enthusiasm for its market-leading savings rates that a record 5,000 new customers signed up in one day – 9 March – to avoid missing the latest hot rate, and crashed the app. To put that figure into perspective, nearly one-third of UK building societies have fewer than 20,000 customers each. Atom tweeted about the fault straight away, stating Some of our customers are having issues accessing our app. We’re working on it right now and will keep you updated. The app was swiftly restored, and Atom continues to attract new customers – it seems it can do no wrong, and its innovative communications style is the key.
Traditional banks tend to broadcast information and news ‘at’ their customers and other stakeholders, the challengers are busy building communities around their brands
All of this is a very different approach to communications than that used by traditional banks. Unlike traditional banks in the UK the challengers do not have the scale or deep pockets to make use of expensive advertising and marketing campaigns, so have had to find other ways to raise their profile. The main thrust is by finding increasingly creative ways to engage with their stakeholders.
‘Banks like Monzo and Atom are trying to do banking in a different way and this means communicating in a different way’ says Paul Beadle, former head of digital at Nationwide and now head of social media and digital communications at agency MRM. So, while the traditional banks tend to broadcast information and news ‘at’ their customers and other stakeholders, the challengers are busy building communities around their brands. Some are doing this in more innovative ways than others. Atom Bank, for instance, bills itself as being tailored to each of its customers. Customers may design their own bank logo, with their own colour palette and use it on social media.
‘Our approach is a bit whacky,’ says Katie Ringsdore, head of PR and internal communications at Atom. ‘The process of banking with us is a much more personal one. We use face and voice security and once you are through those, it is your bank, not just the same one everyone else uses. We have a set of algorithms which allow customers to produce their own colour set and choose their own logo design. So it becomes your own brand. You are part of the family but with your own identity.’
The ‘whacky’ approach extends to internal communications. ‘When we recruit someone, they get a selfie on the wall, so they are part of the family,’ says Ringsdore. ‘We also do video interviews with candidates and ask quite ‘different’ questions. That’s because we are looking for people with a certain mind-set.’
A community-centred, bottom-up approach to communications has so far served many of the challenger banks well when it comes to generating brand awareness and engagement. ‘Many of the challenger banks operate from a different starting point when it comes to social media,’ says Beadle. ‘With the traditional banks, social media is often seen as a bit of an afterthought. You do well to get it onto the board’s agenda at all, and it is seen as an add-on.
‘The challengers are seeing that the people they want to reach are on social media and digital first, rather than using TV and newspapers to provide their news, and so are using this as their primary means of communication and making it a lot more engaging.’
Digital-only bank Monzo, which started off with a pre-paid debit card but now also offers current accounts, hosts a popular and active public forum. While aimed at customers, anyone can join in the numerous conversations. ‘It is an excellent way to build up engagement with a brand,’ says Beadle. Another bank harnessing its own customer base to generate awareness of its services is Aldermore, which besides individual savers and borrowers, also counts a large number of small-business owners who make up about one-third of its 250,000 customers.
‘We are founded on the belief that we need to engage with small businesses. So, we are very active on LinkedIn as that is where a lot of our customers are active,’ says Holly Marshall, director of corporate affairs. ‘At the moment we have one campaign that is calling on the Government to introduce an entrepreneur’s Isa, because that is one thing our customers have told us would have really made a difference to them when they were setting up.’
Aldermore’s campaign for this idea has its own website (supportmoreentrepreneurs.com) and is collecting signatures on a petition. All can be followed and shared on LinkedIn – an approach the bank says has proved popular with customers and intermediaries alike. Aldermore regularly gets first contact from new customers via LinkedIn as a result.
‘We do still have to cascade out corporate information as a listed business, but that is not the side of communications that we prioritise,’ says Marshall. Instead, the bank makes use of the information and views of customers and brokers to produce its Us and our future attitudes report four times a year. In this, the bank addresses issues such as how small businesses will cope with new legislation coming in about how they must hold data. ‘We listen closely to small business customers and intermediaries – who are very insightful we find,’ says Marshall. ‘We do a lot of research about issues we know are of concern to them and share that. It wins us favourability and raises awareness of Aldermore.’
Last year, Atom Bank launched a campaign to highlight how stressful banking can be for people. ‘We did research with the Stress Management Society through YouGov to find out when people are most stressed about their finances,’ says Ringsdore. ‘We thought it would be at the end of the month, but actually found it was just after getting paid, when all the direct debits come out.’
The challenger banks are starting with a blank sheet of paper. They are new, young, vibrant and on the whole, legacy free
To highlight this piece of research, the bank took space in Shoreditch in London with an ATM. ‘We had the Royal Philharmonic Orchestra playing to soothe people as they used the ATM,’ says Ringsdore. ‘The point we are making is that banking doesn’t have to be stressful, and this is a really effective way to get that point across to people.’
Like Atom, Aldermore, which is returning to private ownership this year via a takeover by First Rand, the South African bank, also harnesses its employees to help grow the business and raise awareness. ‘Our employee base is also very active on Linkedin and we encourage them to share information, such as the Us and our future attitudes reports, which we break up into smaller parts and share over a couple of weeks.’
Marshall adds that employee engagement can be very strong in the challenger banks. ‘In the last nine years, Aldermore has gone from start-up, through an IPO, to a listed company and now through a major M&A programme,’ she says. ‘The people who work here get to work on very significant events in the way they wouldn’t at one of the big four banks, for example. We get to build and design more exciting integrated campaigns.’
The digital challenger banks in particular have been able to take this approach to communications fairly effectively, largely because of the large crossover with the technology sector. ‘The tech industry has been doing this for a long time with forums and community groups – such as giving super users early access to their tools and getting them to report back on bugs and glitches,’ says Beadle. ‘Of course, there are limits to what you can do in financial services because of compliance but you only have to look at Moneysavingexpert to see people going on and comparing products and reviews and the power that this has.’
‘The challenger banks have made an incredible effort to communicate directly with consumers and also to engage the developer community,’ says Claudia Bate, head of Fintech at FleishmanHillard Fishburn. ‘There is a lot of cross over between their customers and the tech community and the tech guys are quite vocal advocates for challenger banks.’
She adds: ‘Challenger banks use Twitter and social media much more than the traditional banks. Challenger banks are sharing news about the company, giving product updates and engaging with users. They often have huge numbers of followers.’
On the whole, it is the digital-only banks such as Atom and Monzo which are doing things most differently on social media, according to Beadle. ‘They tend to use social media and digital a lot more because they are speaking to a digitally literate audience who are attracted to them because they are different. Plus FinTech businesses have no option but to find the solutions in social media because they are already digital first and don’t have the scale and budget for traditional methods. It tends to come to them naturally anyway, as they are mostly younger entrepreneurs who already think ‘digital first’.’
In 2016, Monzo – then named Mondo – rolled out its pre-paid debit card to 3,000 early users over a period of 136 days to allow it to be tested and improved before being properly launched. Users had to register on the app, which would tell them where in the queue for one of the new cards they were. The bank would even bump people up the waiting list if they shared news about the Monzo card with others on social media.
‘This is really engaging with the community and it wouldn’t happen with larger banks,’ says Bate. Monzo now has 450,000 users, including 20,000 customers with current accounts, and continues to grow in popularity. Challengers are often seen as being more transparent than the larger banks, say analysts. ‘What a lot have done is make their senior people, even the founders, very visible,’ says Bate.
Anne Boden, chief executive at Starling Bank, for example, manages her own Twitter handle. ‘That is certainly not happening at the traditional banks.’ As relatively new start-ups, challenger banks also tend not to have any of the legacy problems of the larger banks and can command greater loyalty from stakeholders. They also seem to get an easier ride in the mainstream media.
‘Many of the challenger banks are aiming, eventually, to create a one-stop shop for millennials,’ says Bate. ‘They start with a payment card and build on from there. It can almost be like a status symbol to get a pink Monzo card, for example. If ‘super users’ can qualify for newer designs or versions of a product, this helps to build up brand loyalty.’
The challengers have had a fairly easy ride in the press so far. A lot is forgiven when you are a sexy start-up
‘Being brand-new, and in our case 100 per cent digital, it has given us the ability to start from scratch in terms of communications,’ says Ringsdore. Marshall adds: ‘From our perspective, the challenger banks are starting with a blank sheet of paper. They are new, young, vibrant and on the whole, legacy free. So while the big banks are more reactive in their communications strategy – they are fighting fires – our communications strategy is all about growth – to support and raise the profile of the business.’
Challenger banks tend also to get an easier ride when things go wrong, says Bate. This is largely because they are better and quicker at responding to problems when they occur – making ample use of their ‘communities’ to spread the word quickly, as in the case of Atom and its app outage in 2016.
‘The challengers have had a fairly easy ride in the press so far,’ says Bate. ‘A lot is forgiven when you are a sexy start-up. However, they tend to be good at building up the front product but then outsource the tech support, which has led to outages. However, they have been very transparent about problems, acting much faster to apologise and correct problems than larger banks can. They are also starting to take their tech in-house to rectify this – both Monzo and Revolut have done this. When things do go wrong, therefore, they don’t get as much of a kicking as the larger banks would.’
Ringsdore echoes this. ‘We have a 24-hour contact centre for trouble-shooting. Last year, we had a situation when the app went down for a short time. But we got on Twitter immediately and said There is this problem with the app, please be aware, but we are working on it. In the end it was fixed very quickly.
The reality is that people still like the traditional banks and what we will see is them rolling out digital solutions to their existing customers in reaction to what the challengers are doing
‘I think it is easier for challenger banks to be this transparent and quick-witted because we don’t have any history of the sort of behaviour that many people associate with the larger banks.’
While the challenger banks are still surfing general approval from customers and society at large, however, some analysts believe life will become tougher. Bate says: ‘I think the tables could turn because the challenger banks need to start turning a profit. So far, they have not. So they have got to be focused on customer acquisition and keeping their costs down. They will also need to manage their reputations well. Millennials like to shop around, after all.’
‘Despite there being a constant conversation about challenger banks, sometimes the PR is bigger than it really is,’ says Beadle. ‘They are not really making that much of a dent in terms of industry share and profits. Metro still only has two to three million customers. ‘The reality is that people still like the traditional banks and what we will see is them rolling out digital solutions to their existing customers in reaction to what the challengers are doing. It is like when First Direct first started offering telephone banking, it didn’t change the world. But those who used it absolutely loved it and it changed the way people think about banking.’