Several challenger banks are demonstrating how to achieve this challenge. With the new academic year underway, many of Europe’s banks have completed their annual campaign to attract the new intake of freshers. Despite the banking market opening up in recent years, the competition to attract new student accounts is still centred on the long-established names offering sweeteners from a free Railcard to a cash reward for new joiners.

Students represent a major marketing opportunity

With more than 750,000 students newly arrived at UK universities and nearly 500,000 at Germany’s institutions, the 2023 intake would also appear to be a major marketing opportunity for challenger banks to make their mark. Germany’s N26 for example offers them a template in the newly-launched brand promotion ‘This is how I bank’. An ambitious pan-European multi-channel campaign, it features a 30-second film promoting the bank’s smart digital banking tools and the message that they give users full control over their finances on their own terms.

For banks, the secret recipe to owning the market over the longer term is developing an ability to deliver access to a variety of products and services at low cost and do so as efficiently as possible. Some of the newer names are attracting new customers by offering market-leading savings rates but fail at or miss the opportunity to cross-sell other products and services. The more ambitious have expanded their offerings. For example, both Revolut and Wise initially established themselves as providers of money transfer services offering competitive exchange rates and low fees – an entry point that they could subsequently build on by adding other products and services. Monzo’s recent partnership with BlackRock adds investment products to its range, giving it the benefit of a major name and indicating that it has added the older clientele to its sights.

N26: +8m users in 24 countries

The front runner challengers are steadily gaining traction. To date they have attracted 20 million customers in the UK, while N26 now has more than eight million users in 24 markets. An impressive achievement is slightly lessened by most people using challengers as the home for a secondary account with only one in five a primary account. Yet data also suggests that while those aged under 25 might still initially open their primary bank account with a long-established name, they are also more likely to have multiple accounts and to switch freely between them, with second accounts seeing progressively increased usage.

Easier account switching is set to become a requirement of the banking industry in the near future. In the interim, by making onboarding as easy as possible and offering a superior service, over time challengers have made customers comfortable enough for them to make it the home of their primary account. The speed of high street branch closures over the past decade also removes one of the main reasons for young people to remain with the traditional names.

The question for both the incumbent banks, keen to defend their territory, and the challengers seeking to take a share of it is what innovative feature “moves the needle” and propels their offering from mundane to compelling? Astute marketing, such as Monzo’s ‘hot coral’ card, can provide a boost, but with the use of physical cards declining sharply, innovation in the digital experience will soon be the sole battleground.

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Differing needs, differing ambitions

The tipping point that potentially persuades a customer to upgrade their secondary bank account to a primary one will reflect the differing needs and aspirations of four post-1945 distinct demographic groups: Baby boomers; Generation X; Millennials and Generation Z. Some will be seeking to get a foot on the property ladder or cope with the cost-of-living crisis; others will be focused on growing wealth to secure an adequate retirement income or looking for uncomplicated investment opportunities. The challengers are well positioned to build a detailed profile of a customer’s financial situation and fine tune their offering in response. There could still be opportunities for any challenger bank ready to woo the mature users who are some years past retirement, often averse to banking via apps but who are in many cases also affluent and a prime target for scammers.

Wealth management and financial planning, along with borrowing and mortgages appear to be the areas that will offer banks the greatest scope for innovation – although the rise of marketplace aka peer-to-peer (P2P) lending and buy now, pay later (BNPL) services are other potential growth opportunities.

People are increasingly opting to take direct control of their finances and the shift to self-service already evident in areas of everyday life from grocery shopping to ticketing for travel and entertainment will steadily extend to services from investment to mortgages. Personal loan applications are already being replaced by smarter, instant lending decisions powered by Open Banking based on the applicant’s current income and expenditures, rather than their past history.

AI could also prove useful should banks want to revisit past innovations that were hyped as “the next big thing” but did not live up to expectations. A prime example is transaction categorisation, which can provide a detailed breakdown of the customer’s various types of spending. For several years this feature was promoted as the next major selling point but met with indifference and failed to achieve traction. Advances in AI and the move towards a cashless society could allow the concept to be revived and developed into a useful banking feature that provides customers with helpful information that they can actually use.

Thanks to legislation introduced in 2018, banks already offer text alerts for customers who are at risk of running up an overdraft and incurring fees. AI could refine the ‘early warning’ feature by analysing a customer’s regular direct debits and flagging up any potential overdraft risk before it becomes more serious (it also offers scope for SME banking, with essential features such as seamless integration between a firm’s bank account and its accounting package).

Nubank one-stop shop success

Brazil’s Nubank, Latin America’s largest fintech bank and dubbed “the one-stop shop for all things banking”, has been a pioneer in this field with its Nu app recently adding personalised recommendations via open finance when customers have money in accounts attracting little or no interest that could work more effectively elsewhere.

To meet the challenge of developing a more compelling app than their competitors and new features that customers regard as “must haves” banks must have a clear view of what features will really set them apart from competitors and develop a technology strategy that enables them to make rapid headway in their delivery.

There is no shortage of outstanding fintech innovation, so inspiration for banking leaders should be easy to come by. It’s an ability to execute combined with the right technology tooling that are needed to make these propositions come to life.

It’s unlikely to be the case that a single, well-selected ‘golden feature’ will tilt the entire market in their favour. Instead, delivering many of them will have a cumulative and compounding effect. In considering how to achieve this, my advice has always been “buy for parity, build for competitive edge.” The decision for each individual bank will be guided by how they establish themselves in a keenly fought market, develop a genuine differentiation and their action plan for reaching that goal.

Ben Goldin is founder and CEO for Plumery and formerly the CTO of Mambu