Digital Banks

The Rise of Smart Banks: Trust in Digital Banking

In Digital News, Investment News, Research News by Thomas HilbigLeave a Comment

The nature of banking is changing, and investment opportunities abound.

With the rise of the “smart city”, the “smart car”, and the “smart home”, it comes as little surprise that banking is one of the latest industries to be disrupted by technological and cloud-based opportunities.

What exactly is a “smart bank”?

For consumers, the rise of smart banks, or more often named “challenger banks”, normally entails a transition to app-based banking where services are exclusively accessed through a mobile phone.

Many of these latent banks including an array of “smart” features, including a breakdown of expenditure by category (including “transport”, “groceries”, and “eating out”), the ability to set spending budgets on specific categories, and instant spending notifications. 

And they are tapping into a huge demand from UK consumers – on aggregate, branded demand for smart banks has almost trebled in just 2 years:

What does demand for these banks look like in the UK?

Source: Google Ads

That rapidly growing demand is, unsurprisingly, attracting investors too.

Revolut had consistently held the lead for most in-demand smart bank in the UK until earlier this year. However, with a grand £2 billion valuation and a fresh wave of US funding that secured £113 million in investment this year, Monzo has leapfrogged them into first place.

Monzo, also UK-based, has rapidly grown since its initial launch in 2015 and has so far raised a total of $268 million from a number of funders, including venture capital firms Accel and General Catalyst.

However, the turning point in April 2019 may have come with new features launched by Monzo, including the release of ISAs and a swish user interface update.

With wider plans to expand into the US markets, the future appears bright for Monzo – much like it’s distinctive debit cards.

Despite the escalating valuations, there is no sign that the appetite from investors is cooling off –  earlier in 2019, Starling Bank secured £75 million in a funding round by global asset management firm Merian Global Investors, in line with wider funding that the industry has received.

Are smart banks perceived as trustworthy?

However, there are some risks for these brands, particularly with a string of recent high-profile technological scandals in the broader banking sector.

Monzo again appears to be leading the field in the sentiment battle when we look at online conversations, generating a distinct positive net sentiment (+9.8), where the company has been praised for its services and features.

That is in relatively sharp contrast to the negative sentiment with its leading competitors, Revolut and Starling:

Source: Crimson Hexagon

Revolut

Much of the negative sentiment surrounding Revolut was associated with forum discussions of users experiencing difficulties in making international product purchases with regionally specific offers.

However, when these are filtered out and conversations reduced to Twitter traffic, net sentiment decreased to -56.6.

This negative sentiment was generated for a diverse range of reasons although many referred to company-level issues including the company’s leadership, their treatment of employees, and a general lack of trust in the company.

However, other negative sentiment related to scandals associated with the company including their controversial ad campaign which included fabricated data, contentious anti-money laundering (AML) practices, and the CFO of the firm standing down.

Starling Bank

Although net sentiment for Starling Bank was negative at -13.5, they did appear to generate positive sentiment from being a good fee-free card for conducting international payments.

For similar reasons to Revolut, however, negative sentiment was generated in line with users experiencing difficulties in making international product purchases with regionally specific offers.

Once filtered out and traffic reduced to Twitter, however, net sentiment increased to +7.7. On this platform, Starling Bank appeared to hold a positive reputation as a company offering no transaction fees and a good exchange rate.

However, negative sentiment appeared to stem from bad customer service, login issues with the app, and card payments not always working for the app.

The future of smart banking

Despite the sentiment challenges, the smart banking market is undoubtedly set to grow.

If we compare the search demand data on some of the leading UK high-street banks to the challenger banking sector, we can see enormous headroom for growth:

However, it is worth considering if the pace of growth can be maintained – the early adopters of new technologies will have largely already moved their accounts, and a large segment of the remaining demand will be from those less technologically-savvy, resistant to change or risk-averse.

This is where the challengers marketing and branding need to kick in, to capitalise on the large untapped parts of the market they need to convince people that they are trustworthy and can provide the same levels of service many people are sued to from a physical bank branch.

For those brands that do so successfully, the potential is enormous.

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