There is no doubt that financial stress is widespread: the value of the British pound decreasing due to Brexit, the rising cost of living and banking IT system failures to name just a handful of pressures on UK consumers. With banking needs of individuals differing wildly, from those searching for the best interest rates, to checking for an overdraft that doesn’t cost the earth – targeting audiences with specific propositions can be a challenge.

One brand that looks like they have got it right is Monzo, with 20,000 new customers clambering to join the 1,000,000 account holders already banking with them every week. The question is, what makes Monzo, and other new challenger brands so appealing and how will the big four respond?

For a start, it’s clear Monzo knows who its customers are, how they live their lives and what they value most from their bank.  Utilising technology, made easy due to a lack of legacy infrastructure, has led to an industry-leading App for the target audience. The app’s interface is user-friendly and modern and it integrates with Apple Pay. Further consumer-appealing highlights include no fees or charges when using your card abroad, 24/7 customer service, including maximum protection from the Financial Services Compensation Scheme (FSCS) – what’s not to like? Listening to consumers has been fundamental to Monzo’s success. It isn’t simply about tracking data and consumer behaviour, it is about engaging with them to co-create.

Their clear and simple proposition seems to be working – a recent survey conducted by Which placed Monzo at #1 with an 86% ‘customer score’ of 5 stars out of 5 for each relevant set of criteria. Metro Bank, the only other challenger bank to feature on the list achieved 4th position with a score of 76% and a consistent 4 stars out of 5.

Whilst the survey only considered banks where there were 30 or more respondents, there was a noticeable absence of reviews for the likes of Revolut (claiming 2 million account holders) and Atom Bank (UK’s first bank built for mobile devices). First Direct, no longer a challenger brand but one that has stuck to its 1989 founding principles of around the clock high quality customer service and remote access for account holders, continues to satisfy coming a very close second.

Monzo’s primary audience is young, mobile and travel hungry (millennials), and those behind exceptional service, such as First Direct’s discerning home buyer/home owners, who will not tolerate sub-standard customer service. 

The TSB crisis earlier this year resulting in thousands of pounds being fraudulently withdrawn from customer accounts, was compounded by the bank’s inability to manage their customer service during a fateful IT upgrade. Although millions stayed, thousands simply expect more these days; a trend that is likely to grow exponentially.

Jason Maude, Head of System Analytics at Starling Bank, explained in a recent open banking webinar that customer experience is one of the key distinguishers when choosing where to bank, but recognises the need to ensure banks continue to reinforce security and consumer confidence in a digital age. At times, user experience can often be overestimated, as consumers in fact want it to be difficult to get in – as they want the reassurance that the security is there. With banking becoming more digitalised and an open environment, Maude emphasised the need to “move towards a system where all consumers feel secured.”

Changing the conversation, Monzo and Revolut both embrace user-led design, creating customer communities where bugs, ideas and issues can be freely discussed. Whilst established banking institutions might perceive this as an unmanageable number of customer conversations and a potential PR time-bomb, it is enabling the challengers to monitor experience in real-time as well as empowering their account holders to influence products.

That’s not to say the next generation of users are completely ignoring old school banking ideals. Monzo recently announced a partnership with PayPoint, available at 28,000 convenience stores nationwide, to accept customer deposits, recognising the need to ‘deal in cash’ if they want to expand their customer base. Additionally, Santander and Barclays also allow customers to deposit and withdraw cash at the Post Office, which demonstrates how banks are focusing on ensuring banking is convenient for its customers. However, more and more high street branches are closing, indicating that for many of the larger banks, accessibly is being limited to boost profits – although the banks would argue it is what their customers want.

How can the UK’s big four: HSBC, Barclays Bank, The Royal Bank of Scotland and Lloyds keep their proposition simple when they are aiming to be all things to all people, in an increasingly diverse banking market? They have shareholders to please, the liability of high street store closures and unwieldly IT systems that cannot easily respond to new products offered by the challenger banks. If they want to retain their position in the market long-term, they will have to adopt some of the ‘modern’ features coming as standard with some of the challenger accounts, such as the temporary card-stop function (which Barclays have been proudly advertising recently).

A final word from Monzo’s Head of Marketing and Community makes it clear that banking at the challenger bank is not just about savings and paying bills, it’s about society, inclusion and having a purpose: “It’s about getting people onto the ladder in the first place with an account number and a sort code, so they can get paid.” Giving a refugee or homeless person a bank account highlights its inclusivity as a bank. For Monzo, it isn’t about making money, but having a positive impact on people’s lives.”

What works? Listen to consumers, keep ahead of the trend, and remember the next generation embraces new values. The old wives’ tale about being more likely to divorce than change your bank doesn’t hold as much truth today.