It seems that when it comes to gaining user trust, incumbent banks remain at the top. 82 percent of customers reported being totally happy with their incumbent banks, according to an EPAM survey of over 4,500 consumers in the U.S., U.K., Hong Kong and Singapore. And when those surveyed were asked what would stop them from switching to a new bank, 35 percent reported trust as a main reason.
Challenger banks haven’t been around long enough to get the instinctive trust a long-existing brick-and-mortar bank gets. Covid-19 has increased people’s financial anxieties, another obstacle challenger banks need to reckon with.
But challenger banks continue to focus on ways to circumvent this problem.
German challenger bank N26, which just got permission from the Brazillian Central Bank to start lending there, continues to rely on a simple app experience to make up for a lack of face-to-face experience.
While there’s no N26 banker at hand to answer misunderstandings, the challenger bank attempts to make up for this by working to get rid of ambiguities on the app altogether.
“We offer a transparent banking experience with a user-friendly design,” said Alex Weber, chief growth officer of N26. “We remove all the jargon and complications.”
The N26 app’s layout shows transactions on the homepage. Users don’t need to fish around too much to track their expenses, which could make them feel more secure in managing their finances.
For Stash, a NY-based challenger bank which acquired 5 million new users in 2020, the story is similar.
“At Stash, trust-building largely boils down to transparency,” said Claudio Esposito, vp of product for banking. “Every communication with customers is designed to be easy-to-understand and approachable.”
The bank’s investment platform, for example, makes the process of investing seem less intimidating and more accessible, by showcasing all the user’s investments in a single space.
The emphasis on simplicity and transparency that challenger banks place may not be just for the benefit of clear communication, but also to squash distrust among users.
N26 emphasizes its safety as a platform, for example, by providing educational content regarding their security measures.
“We have and will continue to launch features to raise consumer awareness and education around security, including the launch of a comprehensive security guide, helping our customers to bank online safely,” said N26’s Webber.
Then there’s specificity. Both N26 and Stash put a lot of emphasis on their apps’ personalization capabilities.
“It’s about creating experiences on the platform that are rooted in education and that help customers gain confidence as they make progress towards their unique goals,” said Stash’s Esposito.
Esposito cited Stash’s Stock-Back Card as an example, which rewards customers with fractional pieces of stock when they use the card. The card was released back in 2019. It proved to be a hit among users. In June last year, the amount of money users were setting aside for investments increased by over 40%.
In addition, Stash offers educational material within the app that is designed to be easy to understand and help the user make better financial decisions that are specific to their own needs. It also provides an automation function so that the user doesn’t have to redo financial activities over and over again.
N26, meanwhile, offers specific types of bank accounts, including Standard, Smart, You, and Metal, which could also speak to users individualization.
For other challenger banks, niche market targeting has been a way to personalize their platform for specific users. Daylight, the challenger bank designed for the LGBTQ community, and Current, the challenger bank designed for people living paycheck to paycheck, are a couple of examples.
“Hyper segmentation is a great place for fintechs to focus on,” said Tal Sharon, managing partner at Equitech Financial, a consulting firm. “It’s a way to be really good at a very specific niche market.”
Hyper segmentation among challenger banks isn’t something new, but it does speak to the overall goal these fintechs have to gain trust among their users by showing they speak their language.
Still, it may take some time before users trust challenger banks completely. This may simply be a matter of time. For now, incumbents are keeping their status as the safer choice.
“A challenger bank is like a zipline. You might love to try it. But if you fall, you’re still going to want to fall onto a traditional bank,” said Sharon.
“It might cost more, it might be a bit more hassle to grasp, but it works, and you won’t have any trouble with it.”