Here’s how traditional banks are fighting back and attempting to convince their customers to stay put.
Creating better banking apps
One of the ways challenger banks have been able to win over consumers is by offering superior customer experiences. And a great app is almost always a big part of those customer experiences.
Mobile-first challenger banks like Atom and Monzo haven’t just built slick apps that allow their customers to do the basics. Instead, these banks have carefully evaluated how modern consumers want to interact with their banks and designed their apps to meet the needs and expectations of today’s banking customers.
For example, Monzo’s app gives bank customers the ability to retrieve real-time balances, receive instant spending notifications, add receipts to purchases, manage their budgets and transfer money instantaneously to other Monzo customers.
Not surprisingly, big banks have caught on and responded by improving their mobile banking apps. As a result, some now hold their own against the most innovative of upstarts.
Take Barclays. Not only does its app offer customers the basics, such as the ability to manage their personal, business, credit and mortgage accounts in an easy-to-use interface, it incorporates a ton of other features designed to delight users.
They can personalize the app with photos, store financial documents securely in Barclay’s cloud and use mobile PINsentry feature to log in to online banking without a card reader or debit card.
There are useful tools, such as an integrated borrowing calculator, and even a payments feature that gives customers the ability to make secure payments using Siri commands.
One reviewer went so far as to state: “This app is so well designed and feature-loaded it would instantly make me switch from any other UK bank if I weren’t already a member”, which is exactly the type of sentiment banks need to create to ward off challenger banks.
Investing in and acquiring fintech startups
Flush with cash, many big banks have embraced an “if you can’t beat them, invest in them or buy them” strategy.
JPMorgan Chase, Goldman Sachs, Citigroup, Santander and BBVA are just a handful of the large banks that have established venture funds that target fintech upstarts. And they have grown to become a significant part of the fintech funding ecosystem.
In fact, in some geographic markets, collaborative investments – those made by corporate investors – have accounted for more than half of the investment dollars poured into fintech startups.
Banks have also demonstrated a willingness to acquire promising fintech players. For example, in 2014, BBVA bought Simple, an upstart that launched to the public in 2012 as a branchless digital bank. BBVA had participated in Simple’s first venture funding round and eventually decided to acquire the company for $117 million.
Wisely, instead of folding Simple into its existing operations, BBVA kept Simple as a standalone service and incorporates learnings from its operations into its broader innovation efforts.
Partnering with fintechs
Even when banks aren’t interested in using their bank accounts to invest in or acquire fintechs, banks are in some cases opting to make love and not war.
This is especially the case in certain areas, like lending. For example, Union Bank and BancAlliance, a group of more than 200 community banks, partnered with marketplace lender Lending Club to offer their customers loans.
And in 2015, the biggest bank in the U.S., JPMorgan Chase, partnered with online lender OnDeck Capital to offer loans to its small business customers.
Why would banks partner with upstart online lenders? Don’t they lend money themselves?
The answer is simple: in many cases, the online lenders are willing to underwrite loans to customers the banks normally wouldn’t lend to. By partnering with fintech lenders and sending their customers to them, banks can deliver a better overall experience to their customers.
After all, it’s arguably better to help a customer get a loan with another lender than to reject a customer’s loan request.
Using their data
While big banks are embracing digital, and investing in, acquiring, and partnering with fintechs, they don’t always take an entirely benevolent approach to competition.
This is perhaps best demonstrated by the big banks’ reluctance to allow their customers free access to their banking data.
To support their services and offer more efficient user experiences, many fintechs pull data from their users’ financial accounts, many of which are of course housed at major banks.
But not surprisingly, banks usually aren’t so eager to share this data with third parties, especially those they don’t have formal relationships with. So to get their users’ banking data, fintechs often resort to scraping, which can be unreliable.
Banks largely argue that they’re not keeping a tight grip on data to thwart competition but rather to protect their customers from cyber criminals and data breaches. Some banks are reportedly establishing official APIs that they give fintechs – for a fee of course – but it’s clear that data offers banks a big advantage and they know it.
Those that not only guard that data but put it to good use to create better experiences for their customers will probably be more successful going forward than those that don’t.
Downsizing their brick-and-mortar footprints
While there’s still place for physical bank branches in the 21st century, modern consumers have made it clear that they’re not interested in interacting with their banks in the real world unless they really have to. For example, thanks to mobile check deposits, customers no longer even need to make a trip to the bank to deposit checks.
Banks are responding to this trend by closing branches and investing the money they save in to building better technology and shoring up other customer service channels. In other words, they’re freeing up capital that they can reallocate to the areas that customers care about the most.
Over time, those investments could prove critical to helping banks keep customers on-side and weather the challenger bank onslaught.