Digital disruption: Challenging banking’s status quo through technological advancement



The retail banking sector is embarking on a period of regulatory-driven change, with IT set to play a key role. Recent times have seen significant sanctions imposed by the Financial Conduct Authority (FCA) for misdemeanours they may well have overlooked in the past, with the £56m fine imposed on RBS for the failure in IT that led to their customers unable to access their cash being the primary example.  With the spotlight in banking now firmly returning to the customer, this type of failure is seen as unacceptable and the newer, smaller and more innovative “Challengers” are aiming to take full advantage of the larger, well established banks archaic and complex legacy IT infrastructures in the hope of stealing market share – it’s early days, but all the signs so far mean the Executives of the “big four” (RBS, HSBC, Lloyds and Barclays) should hear the alarm bells ringing loud and clear!

In a recent survey by Fiserve (a supplier of Banking software) of 2,000 people, 80% of people said they would trust a bank that had reliable technology, with 56% saying that banks with reliable IT software would have an advantage over their rivals. With that in mind, the “Challengers” are leading the way and are actively using technology to improve customer service and introduce a new range of products including secured and unsecured loans, savings accounts and much more in a way that’s never been done in retail banking. Streamlined, agile processes combined with state of the art IT infrastructures are set to play a key role in the transformation of banking and three institutions spring to mind immediately; Atom Bank, Starling and Fidor Bank.

All three are taking advantage of digital innovation in order to bring benefits to the customer. With Atom aiming to become a provider of online-only current accounts, financial benefits can be delivered through low operating costs meaning customers may be tempted by lower interest rates on loans, and higher rates on savings. Starling CEO Anne Boden is also aiming to create an online-only digital bank and says that “finally, the technology behind all the best internet platforms can be brought to banking, allowing us to create a digital banking service that’s truly personal to each customer”. She goes on to say that “empowered, tech savvy customers want and deserve more from their banks – they want easy, intelligent banking, not just mobile versions of paper statements.” Fidor Bank is taking the use of technology, and in particular social networking even further in the hope of attracting the millennials – a specific customer base who have never known a life without technology. The aim of which is to increase trust within their customer base by creating an online community. A community that allows for peer-to-peer (P2P) loans and a reduction in interest rates for every 2,000 Facebook likes!


Despite the “Challengers” recognising that Banking is in dire need of an overhaul and therefore actively introducing innovative ways to bring the focus back to the customer and increase the levels of customer experience and satisfaction through digital channels, I think we need to take a step back. Let’s take stock of the magnitude of the challenge that lies ahead.


Yes, in the last five years through the contributions of “Challengers” such as Metro Bank, Aldermore and others, the Banking sector has undoubtedly seen a positive shift. However, in a recent survey by the Competition and Markets Authority (CMA), 37% of respondents said they’ve held their current account with the same bank for more than 20 years. Just 3% said they’d changed their current account provider in the past year, and 58% of which said that they valued a bank with a national branch network – something which many of the digital “Challengers” say they will not offer. In fact, the CMA noted that customers are far less likely to change their bank than they are their provider of car insurance or their energy provider.


Nevertheless, despite that dose of realism and perspective the “Challengers” are making in-roads to the customer base historically reserved for the high-street giants. Lloyds tell us that they now have 5 million customers using online banking through their mobile device compared with none three years ago, meaning 200 branches now face the axe as the demand for face-to-face banking is clearly on the decline. The “Challengers” still have some way to go but the signs are clear and the customer has made their voice heard. Five years from now, the retail banking sector is set to look very different to the landscape of today and the high-street may well look very different too.


Referenced Material:

“Six challenger banks using IT to shake up UK retail banking”,, Karl Flinders, Jan 2015


“Challenger banks have the best IT. Now for the tax battle”,, Nick Goodway, Sept 2015


“Can challenger banks really challenge the Big Five?”, Stanton House Blog, Simon Wiggins, July 2015


“Will Millennials Fuel the Rise of Challenger Banks?”, International Banker, Senthil Kumar, Vice President, Business Development, Oracle Financial Services, Sept 2015


“UK challenger banks aim to loosen grip of big four”,, Jill Treanor, June 2015


“A new challenger bank built like an app store just launched in the UK — we spoke to the CEO”, Business Insider UK, Oscar Williams-Grut, Sept 2015


The five challenger banks focusing on IT to stand out in the retail crowd”,, Shane Schutté, Sept 2015