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Consumer trust will determine future of banks and neo-banks

Consumer trust will determine future of banks and neo-banks

Legacy banks win on functionality,

but fintechs have emotional edge

Amy Cashman

Co-CEO, UK & Ireland, Insights Division



The rise of the challenger or neo bank has been heralded across many markets. In the UK, where the government has actively intervened in banking to both encourage new entrants and drive current account switching, several new players have launched in the last five years, including Monzo, Starling, and Atom.

Though they have undoubtedly picked up new customers, and even created a stir in certain quarters, the ability of neo-banks to drive customers to choose them for their main current account has been limited and has had a knock-on effect on their ability to convert new account openings to profit. In fact, Kantar research found that 58 percent of neo bank customers still had their main bank account with a traditional player, and on average these customers had three accounts compared to the national average of 1.5.

Why is that? An understanding of the role of trust in consumer choice and confidence in this category helps us understand. There are two ways that you can trust banks with your money. The first is what could be termed functional trust: “I trust that when I deposit my salary it is still there when I need to spend it.” The second is more of an emotional trust: “I trust you are supporting me to do the best for my money and financial health.”

The neo banks, with the more modern and inclusive feel to their marketing and their app-based offer giving financial control and transparency, are strong at driving that sense of emotional trust. However, the traditional players, with their long-standing heritage and reassurance, deliver more strongly on the functional trust.

BrandZ findings reinforce these points and tell us that traditional players are far more likely to be defined by those functional trust credentials than the neo banks. This result is observed not only in the UK, but in other markets too, such as Canada, India, and China, where the large traditional players clearly own this area of trust.

Where the neo banks outperform the traditional players in these markets, however, is through a very strong perceived point of difference. This is driven by positive views of their innovative offer and the way in which they fit seamlessness into people’s financial lives.

Interestingly, in the UK we are already seeing the traditional players trying to move into the emotional trust space with Nat West’s recent focus on financial education and wellbeing and

campaigns like Lloyd’s “The M Word,” which presumes that money is a topic people have a hard time talking about. The campaign captures a series of awkward conversations with the tagline, “It’s good to talk about money.”

It will be interesting to see how consumer response to these new directions from traditional players is reflected (or not) in current account openings and switching. If consumers remain skeptical of the traditional players in this area and neo banks are able to keep building their own functional trust credentials and customer base, especially among younger consumers, then over the next five years we could see a significant shift towards neo banks as main account locations. Either way, the usually glacial pace of change in the UK banking market is now heating up.