Funny Money
Written by Mark Gentry,

It has been clear for some time that challenger banks, particularly Monzo and Starling, are growing rapidly. What is less clear is how many of their customers are ever going to use them as their main banking provider.

These brands acknowledge that they are usually secondary providers, with many customers using them for managing their disposable cash spending – in short, the “fun” part of their banking lives.

We interviewed 1500 UK consumers in early 2019, and it was clear that most people who use these providers keep their main banking relationships with established banks. 4% of our sample were using Monzo, and another 4% using Starling, but the proportions who used these brands as their main bank barely registered (6 people for Starling Bank and 1 for Monzo).

We also found no discernible difference in challenger users’ perceptions of established banks’ ability to meet their needs. When presented with a range of key financial tasks (including monitoring balances, making regular payments, saving and transfers) challenger users were equally likely to say that they believe that their bank understands how to make these tasks work well for them.

Our study also highlights a persistent attitudinal preference for accessing new digital financial services through established banks, even among those using challengers. Users show no difference to non-users for…:

  • …consideration for using an established bank to access new digital services: this is by far the top choice for all consumers
  • …belief that all of the major bank brands already have “digital” offers

We captured several comments from challenger brand users that illustrate why they feel nervous about challenger banks compared to the established brands:

“I still don’t know if I trust them with all my money”

“I’d rather do it via my bank to ensure I am protected financially

“I think people still prefer old school banking”

“Security I am not convinced on”

We did, however, also find positivity about the specific functions being offered, particularly overseas transactions and monitoring spending budgets, and limited evidence that this can drive consideration of switching main banking to them.

“It is very useful in regard to converting sterling to Euros at low cost with a good rate”

“It’s easy with great budgeting services and makes it really easy to transfer money”

“It’s better for me to have separate spending money. Also traveling is cheaper with Monzo”

“Fantastic notifications. Can use in Europe. I am thinking of moving everything to Starling”

There have been indications recently that more people may now be using challenger brands as their main providers. Figures released from the Current Account Switch service (and therefore focused on main banking provision) for Q3 2019 showed Monzo as second to Nationwide in gaining the most net switchers, with Starling in fourth place (reported in www.thisismoney.co.uk 23 January 2020).

It important to place this growth in context, however. The volume of people switching main accounts to Monzo in Q3 represented less than 2% of Monzo’s entire customer base (c. 3m), and less than 1% for Starling (although there are indications that Starling users are more likely hold their primary accounts there).

Our view is that the current growth in the use of the new challenger brands as main providers, despite some signs of acceleration, remains relatively slow. Many users are still essentially trialling their offers, and see no clear reason to make radical changes:

“It’s still new and still working out all the kinks but so far seems to be working well”

“It’s still new technology and I want to test it further before recommending them to anyone”

For the time being, challenger banking remains very largely driven by the opportunity to try something new. It is unclear what might push users more quickly towards a “tipping point” where they become their de facto main providers.

One thing that we might expect to see is a shift towards a more “serious” tone from these providers. This will be a tricky balance for brands who have positioned themselves as quirky from day one, but which may be essential for maintaining their growth – what happens when it stops being fun?

By Mark Gentry

Mark Gentry