By Oliver Smith on Tuesday 28 July 2020
Has lockdown been a boon for incumbents?
Since March the belief among fintech industry observers has been that Covid-19 and the subsequent lockdown of our economy has been a positive for digital banks.
It’s a theory that makes a lot of sense, given challengers like Monzo and Starling exist entirely on your smartphone, were already set-up for remote onboarding and have the kind of service well-suited to a customer base unable to leave the house.
However, a new equity research note from investment bank Jefferies questions this narrative and instead asks “Will Corona Kill the Digital-Only Challenger?”
Using SimilarWeb data and its own estimates the note shows that banking app market share by installation rates and customer engagement has actually been shifting in favour of large banks since the start of 2020.
“Large incumbent banks have shown an improvement in install rates as well as share of app downloads since the onset of the coronavirus and the associated lockdown,” the note explains.
“The open rate (i.e., the percentage of the installed base opening the app daily) - our preferred yardstick for customer engagement - continues to indicate that digital-only offerings have less engaged customers than those with multi-channel offerings.”
The analysts don’t go into detail on why these rates are “foundering” at digital-only banks, but admits the trend is “quite nascent” given the data only covers a few months.
One might presume that the market share shift is in part due to many incumbent banking customers being forced to reluctantly download their bank’s app for the very first time during lockdown, as opposed to true customer demand.
For app install numbers you could also point out that many of the high profile marketing campaigns planned by digital banks (like say, Starling’s sponsorship of Team GB at the Olympic games) haven’t quite gone according to plan this year.
"At Starling our account opening and customer engagement have remained very strong through the coronavirus emergency and we simply do not recognise the picture outlined in this report. We now have more than 1.5m customers," a Starling Bank spokesperson told AltFi.
Regardless, Jefferies' note concludes that digital-only banks will continue to exert pricing pressure on incumbents for the foreseeable future, seemingly answering “Will Corona Kill the Digital-Only Challenger?” with a resounding “no” for the time being.