A new survey has placed challenger banks ahead of their high-street competitors in terms of quality of services.
In a report from research company Ipsos Mori on the UK banking sector, Monzo was rated as offering the highest quality service. The survey found that 83% of respondents would recommend their personal current account provider to family and friends.
Joint second were Monzo’s fellow challenger Starling Bank on 81%, along with HSBC’s telephone and internet-based division First Direct.
Among the traditional banks, Metro Bank rated the highest at number four, with a 74% recommendation rate.
Although a traditional high street bank, it is also a relative newcomer to the industry – when it launched in 2010, it was the UK’s first new high street bank in over 150 years.
The rest of the list is made up of other high street banks, with Nationwide coming in fifth with 68%.
When it comes to satisfaction with online banking and overdraft services, the challenger banks all polled near the top of the ranking. Monzo, Starling Bank and First Direct were ranked first, second and third respectively, with 88%, 87% and 82% recommendation rates.
For overdraft services, First Direct came first on 67%, while Metro Bank took second place with 66%, while Monzo and Starling Bank were joint third with Lloyds Bank on 65%.
Rise of the Challenger Banks
The survey shows a clear trend in favour of younger and internet-based companies at the expense of established institutions. Since being founded around the middle of last decade, Monzo and Starling Bank have been appealing to new demographics, mainly younger affluent customers.
Not only is this tempting these desirable customers away from high street banks, the survey demonstrates the loyalty and even evangelism many challenger bank customers feel.
Despite this, the last year has been a mixed bag for the two challenger banks. Starling experienced a 600% rise in revenues from November 2019 to March 2021, compared to the previous period. In addition, customer account numbers more than doubled to 2.1 million compared to 2019’s 926,000.
However, Monzo reported a £114.8 million pre-tax loss for 2020-2021. It did see its revenue grow 30% compared to March 2020, and its deposit base jumped 124%, from £1.4 billion to £3.1 billion.
This suggests that, despite challenging conditions across the board from the last year, the companies are building a growing customer base.
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In addition, the coronavirus pandemic has had a massive effect on people’s financial habits. As more people move their lives online and in-person transactions become more difficult, online-first challengers have been well placed to take advantage of this trend.
Being primarily internet-based means that challenger banks do not have to maintain costly brick-and-mortar branches, many of which are operating at reduced capacity, or have been closed altogether.
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