What has appeared seemingly out of nowhere is a digital banking revolution. With some critics claiming the big banks are lagging behind when it comes to apps and technology, it was almost inevitable that digital first ‘challenger banks’ would appear offering an alternative fit for a world of smartphones, apps and wearables.
What is a Digital First Bank?
A term coined by the first pioneers, digital first banks are licensed and regulated banks whose infrastructure is held primarily in the digital sphere. This means digital first banks don’t have physical branches or call centres, but instead offer a centralised mobile app to manage your account and money, while online customer service portals such as web chat, social media and even online forums act as the main port of call to get in touch with your bank.
The likes of Monzo currently offer a cash card account directly integrated into an app, fairly normal you might think, but with the features of the app consisting of a money management system built for a digital world, it’s clear Monzo have more than a cash card account in mind. In fact Monzo has recently applied for and been granted authorisation by the Bank of England to conduct banking activities. A major sign this company is hurtling towards its goal of being a fully fledged bank.
With other digital first banks such as Atom Bank now offering an interest-earning savings account and even a mortgage product, it seems the sky’s the limit when it comes to what’s possible for these smaller banks. With Atom Bank sporting the former chair of Metro Bank, alongside the ex-chief of First Direct, it’s clear the ambition and confidence is there to make this fledgling business model work.
And don’t assume this is an unchallenged market. New companies are appearing all the time, such as Starling Bank who are due to launch soon with a current account offering, including overdraft facilities. Younger still are the optimistic and bright eyed Tandem who are just starting out on their own journey to transform the banking industry.
Most of us dislike changing banks at the best of times. So what will it take to change to a digital first bank? Well of course, you’ll want all the same services you get with your traditional bank, and unfortunately, a full range of services just isn’t available with any one provider yet.
For now, it’s about trying a specific service you think would be useful to you. For example, a cash card account to keep spends separate from your main current account or if you’re looking for a mortgage, but the high street providers just aren’t filling you with confidence, then now might be the time to try an alternative.
So what makes a digital first bank different to their bigger, corporate relations?
First of all, what you’ll notice throughout their literature, online marketing and social media channels is very much an informal tone, not the sort of faux approachability we see from the big banks. From hosting live video Q&As on Twitter with the CEO, to sharing photos and videos of the small but mighty team celebrating when a new milestone has been reached, it’s clear they’re not going to be nor do they want to be a bank in the traditional sense.
And this all stems from the way in which they got off the ground. As most of these companies started out with crowdfunding or BETA programs, their core customer base and brand advocates have been established early on. This has given the company time to meet and talk with their devoted customers, asking for feedback, help and advice before even going to market with the finished product. This also means there’s a collective of digital first banks getting their banking licence with a core customer base already installed!
A key advantage of the digital first bank is lower overheads. With no branch network to maintain or multiple customer service centres to run, this business model focuses on the technology first, with a social media strategy and dedicated forums set up as the customer support network. Areas some high street banks are only just tapping into.
It’s clear this is early days for the digital first movement, what comes next is up to the companies and customers who are driving it. What isn’t clear is how the major banks are planning to keep up.