Challenger Banks: Your Customer Experience Is at Risk

This blog is part of a series covering solutions to the risks challenger banks are encountering during their rapid growth.

Challenger banks have completely reimagined user experience. Built on future-focused technology with UI design to rival top-tier apps and websites, it’s no secret that these small, nimble players are putting up a serious fight against established banks. Their key to success seems surprisingly simple: leverage cutting-edge technology to provide a frictionless customer experience. However, disruptive growth comes with its own set of problems. Like traditional banks, challenger banks are susceptible to fraudsters and ever-evolving threats.

The Gold Standard of Banking User Experience

Bank interaction preferences have shifted significantly over recent years. According to PwC, in 2012 the majority (57%) of customers were omni-channel, interacting with their bank through both physical and digital channels. Then, in just five years, consumer preferences changed dramatically. Digital-centric customers increased by a staggering 19% to make up the majority (46%) of customers interviewed. Omni-channel customers dropped 12%, to 45% of customers, and human-centric customers only make up the remaining 10%.

This shift to digital-centricity has led to an expectation (rather, a demand) from customers for banks to change their legacy, branch-centric models—a difficult problem considering how much banks have invested in their existing models. Digital interaction, with instant fulfillment, is the new norm. Banks need a customer-centric, digital solution.

Challenger banks had the foresight to spot the shift in customer preference from omni-channel to digital-only. They responded by creatively developing customer experiences that, while devoid of human interaction, feel friendly and personal. For example, a German digital-only bank, Fidor Bank, built a banking model around their online community. Customers can make recommendations and receive advice from each other (with experts just one step away), all without visiting a branch.

Customers love these innovative models. A recent report from FIS stated that 45% of challenger bank customers are ‘very satisfied,’ compared with 30% of customers at the top 50 global banks. This satisfaction is contributing to the growth of the challenger bank industry, which, according to Variant Market Research, is expected to grow 46% annually until 2025.

However, turning these new customers into life-long customers is a problem. With banking being a an industry reliant on customers continuing to purchase additional products, it is important that customers who switch to these new banks stay for life. However, for challenger banks born in the digital era, customer experience expectations match those of other technology companies, not those of established banks. Because of this, customers are more likely to walk away over small things, like a poor mobile app UI. The CTO of Tandem Bank, Paul Clark, explained in an interview how quickly these customers can leave:

There’s an expectation. If those other people’s apps are Uber or Facebook or Instagram or whatever your favorite apps are, then that’s the level of sophistication, of smoothness, of customer experience that your customers expect. And when they don’t get that, when they jar up against it, it’s very easy to drop one app and move to another.”

Maintaining an excellent customer experience is paramount for challenger banks.

Don’t Let Fraud Ruin the Experience

How can challenger banks continue to provide a great customer experience? In addition to providing personalization and customization options to appeal to a tech-savvy generation who expects instant fulfillment, challenger banks need to prevent fraud and be compliant. With a poor risk strategy, challenger banks run the risk of either increasing customer friction, by driving up false-positives, or decreasing customer trust through fraud occurrences like data breaches or account takeovers.

Fraud can be life-threatening for challenger banks. Unlike many established banks, who have spent years building and refining their customer relationships, challenger banks are still working to build their reputation. Their reputations are significantly more malleable, and therefore what would be a simple fraud incident at an established bank could be catastrophic for a challenger bank.

A perfect example of this is the well-known case of Wells Fargo, where, in 2016, it was revealed that employees had fraudulently opened 3.5 million customer accounts. While fraud at this scale is by no means insignificant, Wells Fargo weathered the crisis and still managed to post a profit of over $20 billion in 2016. In 2018, they launched the “Re-Established” marketing campaign, essentially ending the majority of public scrutiny. Wells Fargo has worked for years to develop a reputation, and were able to rely on it during a crisis, a privilege that challenger banks don’t have.

The CEO of Bank of Cyprus, Nick Fahy, commented on why fraud incidents may have a more significant effect on the reputation of challenger banks:

A cyber incident for a Challenger bank will have a far greater reputational impact than an incident in a larger bank as people will inevitably assume that the smaller bank has under-invested in cyber security.

Challenger banks only have one chance to impress with their new offerings. Fraud shouldn’t be the reason that people turn away.

Choosing the Right Fraud Solution

Unfortunately, many existing fraud prevention options aren’t a fit for challenger banks, as they negatively impact customer experience by increasing friction and costs, which the bank must eventually pass on to customers.

So, what should challenger banks look for when searching for a solution that will fight fraud and help maintain a great customer experience?

Find a Fraud Prevention Solution That Will Keep Friction Low

Challenger banks want to keep their customer experience frictionless, so their fraud prevention solution must support fast, real-time decisioning. To avoid getting in the way of customers, they need a solution that is ultra-low latency and can score in under a hundredth of a second. The solution needs to automate redundant tasks, as manual reviews take time. It needs to run on the latest, greatest technology to support an innovative customer experience into the future.

Find a Fraud Prevention Solution That is Cost Effective

Finally, challenger banks want a solution that fits their budget and can effortlessly scale with their rapid growth. They want something that is lightweight, with no hardware to install, and that  is easy to integrate via API. They want to be able to update it easily, and be able to reach out to a seasoned team of banking experts when necessary. The less time they have to spend on maintaining their fraud platform, the more time they can spend innovating on their own.

Challenger banks want a solution that is like them: nimble and future-focused.

To learn more about how Feedzai for Challenger Banks is supporting the unique needs of challenger banks, see Feedzai for Challenger Banks.

Kevin Miller

Kevin Miller

Account ExecutiveFeedzai
Kevin Miller

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