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Half of consumers to use challenger banking in next three years, says new report

Report from Capgemini finds that challenger banks are redesigning the overall banking journey.

a person standing in front of a sign

Norris Koppel, CEO of digital current account Monese.

Challenger banks are raising the expectations from Generation Y and tech-savvy customers, with more than half of consumers using or likely to use payments, card and retail banking accounts from a challenger bank or big tech company in the next three years, a report has found.

Capgemini’s World Retail Banking Report highlights how challenger banks are changing the overall banking journey as well as offering customers new services, like quick or early access to funds not covered by traditional loan or card systems.

The report highlights that traditional banks have the right product but are "lagging behind and giving ground to non-traditional payers in the last-mile customer experience".

It says that "challenger banks are capturing the last mile of the banking value chain by swapping the conventional rulebook for offerings designed around customer needs".

Examining the customer experience approaches of various innovators and scrutinising the customer experience challenges faced by retail banks, the report found that most traditional banks struggle to drive open banking initiatives effectively. 

"Before firms can harness the full potential of open banking, legacy stumbling blocks-siloed infrastructure and traditional mindset- must be overcome,” the report says.

The report cited innovations by challenger banks like N26- which offers consumers a banking app with innovative features such as card-locking and fingerprint login and Monese,-which launched a joint service with PayPal which allows customers to add the Monese card to their PayPal digital wallet and manage their PayPal balances in Monese's app.

"Challenger banks stand apart because they do not attempt to own all the innovations they offer, instead opting to extensively leverage fintech collaboration to provide customers a greater range of choice," the report highlights.

A contributor to the report has called on traditional banks to improve the customer experience if they want to combat the challenge from challenger banks.

"Non-traditional players may not try to replace banks, but they may contribute to margin compression for banks by placing themselves between the bank and the customer, " said Dennis Khoo, Regional Head, TMRW Digital Bank.

"The biggest opportunity for banks is to focus on deepening engagement through customer experience."

The report polled over 7,900 retails banking customers in 20 countries and responses from over 50 banks.

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