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Challenger banks

Adopting a challenger (bank) mindset

  • bijon mehta
    Bijon Mehta
  • Oct 30, 2020

Much has been made of "challenger banks" and strides in digital innovation, and with good reason. These financial services sector disruptors continue to grow in accounts, numbers, and influence. All financial institutions, however, can seize the chance to update aging technology, evolve customer experience strategy, and adopt a "challenger" mindset.

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Institutions of all sizes—global banks, regional banks, community banks, and credit unions—face a crossroads. The generational opportunity to embrace online customer experience and redefine innovation trajectories to match surging digital engagement will transform banking as we know it.

A lot has been written about “challenger banks,” who are helping to raise the bar on what banking should be. As these challenger banks have grown globally both in number and account holder growth, their success can be a source of strategic insights as banks of all sizes accelerate their digital plans. But aging technology infrastructure, changing demographics, evolving consumer behavior, and now COVID-19 are creating a transformative opportunity for incumbents.

While challenger banks have captured headlines for the past several years for their growth and acceleration, all financial institutions can step up to the moment and adopt a “challenger mindset” as a strategic framework to shape the future of banking.

What analysts are saying about how financial institutions can transform post-COVID-19

Leverage technology to transform the financial customer experience

Speaking with and gaining insights from senior banking leaders across the U.S., U.K., Canada, Asia-Pacific, and beyond, a consistent theme has emerged: the need to enhance customer engagement.

Challenger banks have done a great job of rethinking the customer experience. Everything from relevant features, intuitive design and display, simplicity of use, and even packaging for physical goods has been approached from the perspective of the customer.

These digital-native banks, unencumbered by legacy technology, have leveraged the cloud, APIs, best-in-class applications, and data to drive these modern experiences in the most agile of ways. Incorporating A/B testing for new features, machine learning to analyze information for next best action, and more frequent software release cycles are all tools that these new banks actively leverage to continuously improve the customer experience. banks, unencumbered by legacy technology, have leveraged the cloud, APIs, best-in-class applications, and data to drive modern experiences in the most agile of ways.

Bijon Mehta

COVID-19 has become a digital litmus test for incumbent banks, as many basic capabilities are non-existent or coming up short of customer expectations. Organizations are increasingly focused on creating a high-tech way to deliver high-touch services. This is requiring banks to rethink customer engagement, multi-channel capabilities, mobile offerings, security, and customer support.

An unforeseen benefit from this crisis? The acknowledgment that many long-delayed digital initiatives are now a necessity to support existing customers and attract more digitally savvy customers.

Build relationships beyond the transactional

Incumbents have several advantages over their younger, digital counterparts: an existing customer base, strong GRC (governance, risk, and compliance) capabilities and processes, and an earned trust factor.

These all form a critical base for success for those banks that can now make the digital pivot.

Organizations need to look at their line of business-level and assess how they can digitally deliver the same if not better quality of service. Many processes need to be redesigned around digital interactions as social distancing will require an alternative to in-person meetings. In retail banking, the system that is historically incredibly branch-centric will now need to separate banking from the branch.

Developing relationships with all segments of customers: individuals, small businesses, and corporations, will require better digital tools and a mindset that allows customers to meet their bank over the channel of their choosing (voice, SMS, chat and video). This is how relationship banking will be done in the future.

Incumbents have several advantages over their younger, digital counterparts: an existing customer base, strong GRC (governance, risk, and compliance) capabilities and processes, and an earned trust factor.

Bijon Mehta

Leverage long-term customer data to provide insights and value on customer-choice channels

Taking a page from the challenger bank playbook, incumbents need to not just focus on offering digital channels but evolving their products and services for a digital medium. Banks need to rethink how they can provide timely, valuable information over the channel of their customers’ choice—and ensure that all channels are seamlessly integrated.

The challenge will be in how incumbents address their technical debt and modernize their infrastructure. Providing insights and serving up the right information via the chosen channel requires breaking down data silos and creating interoperability between systems. This is not a small task for most banks but another long-understood problem that COVID-19 will ensure gets addressed.

Despite the technical hurdles, traditional banks have a distinct advantage here. Their number of long-term customer relationships provides them with years of data. This information, coupled with modern tools like machine learning, chatbots, and digital channels like SMS and messaging, can create powerful engagement and value drivers.

The challenger mindset model drives meaningful engagement

If banks can further digitally deliver their products and services, they will positively impact how their organizations interact with and serve clients of all types, and this new approach will put clients at the center of their engagement model. While communications has always been the backbone of the financial services, it will now be integral in enabling choice, removing friction, and enhancing experiences.

This new challenger-mindset model is an opportunity to turn one-off interactions into meaningful conversations and deeper relationships. New digital services will form the backbone of customer relationships, increasingly driven via digital communications.

Learn more about key trends shaping digital engagement strategies in financial services with our consumer trust report and analysis

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bijon mehta

Bijon Mehta

Bijon is the Global Head of Financial Services at Twilio. His industry expertise spans his 25 years of experience in financial technology, capital markets, corporate innovation, and digital product development.