Banking disruption - consumers want to work online, but it's still too difficult to move from legacy banks to digital challengers

Profile picture for user slauchlan By Stuart Lauchlan November 5, 2019
Consumers like the idea of digital banking, but inertia caused by difficulty breaking free of legacy providers is slowing the move to digital-only challengers.


Twice as many people today prefer a digital banking experience over the physical branch banking equivalent, according to a study of 2000 adults in the US and the UK. But it’s as a secondary banking option for many as it’s still made too difficult to make the leap away from legacy providers.

The Q4 results of the 2019 Digital Banking Study from card  - conducted by Propeller Insights on behalf of fintech firm Marqueta - found that 62% of US respondents now do the majority of their banking online, while in the UK nearly three-quarters of consumers (74%) say the same.

The same percentage of UK respondents expect to use their banking app “regularly” over the next few months, while more than two-thirds (69%) of their US counterparts make the same claim.

Less than a third of US consumers (30%) reckon they’ll set foot in a physical branch over the same period, still more that UK respondents where less than a quarter (22%) say the same.

Against a backdrop of banks in both countries engaged in branch closure programs, there’s some good news of financial institutions as only a third of US customers (33%) and less than a quarter of UK. (23%)  say they’d be inconvenienced if physical outlets shuttered tomorrow.

Even when it comes to tackling problems and errors, the long-held notion that consumers are happier dealing face-to-face to get a fix comes under pressure from this study. Only 28% of UK and 23% of US respondents want to be able to go into a branch, with a majority from both countries (51% and 54% respectively) simply wanting their problems fixed quickly regardless of channel.


All that being said, is the implication then that there’s a mass migration towards digital-only banking providers underway? Er, not quite. This is where inertia kicks in. Or in other words, the hoops that need to be jumped through to leave one bank and move to another appear still to be enough of an inhibitor to favor the ‘legacy’ banks.

So while north of three-quarters of UK respondents (77%) and 74% of US, say that they would look at a digital provider if they were moving bank, only 36% and 30% respectively have actually considered making a switch over the past 12 months.

It’s too much work to change - 26% UK, 20% US respondents - and too interruptive to deal with - 25% US, 22% UK, In addition, the process of changing is too confusing - 15% US, 12% UK.  The study report notes:

The answer to why [there is inertia] is pretty simple: people just don’t really know how to do it. In comparison to buying a new car, moving to a new city, switching phone providers and so on, changing banks is a major life change that seems like both a lot of work and just intangible enough that people don’t know how to make the first move.

There’s also a sense of risk that still hangs over the digital-only providers suggests the study. Over half of respondents in both countries - 54% US, 51% UK - said they feel a digital bank is a riskier place to deposit their money. That’s a sentiment that is only likely to harden if macro-economic factors get worse - 61% of US and 58% of UK respondents would be more wary of online banks in a tougher economic climate.

The four main concerns around digital-only banks are cited as:

  • Customer service concerns - 42% US, 30% UK.
  • Market track record - 30% UK, 15% US.
  • Lack of deposit volume (ie not enough customers) - 22% US, 18% UK.
  • Staying power - 17% UK, 17% US.

The study report highlights the dilemma here for digital challenger banks:

Consumers have a long track record with the banks that they’ve trusted to date. For the occasional complaint about customer service and relevancy, their money has stayed where it was supposed to. It poses an interesting challenge to new digital-only banks. You can create a better experience, without any of the legacy overheads of old fashioned banks. But how do you convince people that you’re a safe bet with their hard earned pay-checks and savings accounts?

So what is happening in terms of digital provider adoption is that consumers are using these platforms as secondary services not as their primary banking option. That suggests a willingness to experiment on the part of consumers, but also a need for the challenger banks to educate and incentivise change.

One piece of good news from the study for the digital generation of providers. Among those who have  accounts with both ‘legacy’ and challenger banks, more than half of all respondents - 53% in both countries - say they prefer the service they receive from the latter.

My take

As I plowed through this study, I found myself conflicted. So many of the findings mirrored my own banking experiences, although there were points of marked departure. In the main I find telephone customer support in the event of a problem still to be a totally unempathic experience in the main, primarily driven on the part of the provider to avoid any blame or admittance of shortcomings being attached to them.

I’ve used ‘legacy’ banks on both sides of the Atlantic and found the experience to be sloppy at best, indifferent and arrogant at worst with a running theme of ‘the customer is a flaming nuisance’ being the undercurrent.

I recall signing up with Bank of America once back in the mid-1990s and being told that as I wasn’t a US citizen, I could only get a particular type of account whose terms and conditions were that I couldn’t get in-branch customer service. I could use the ATMs and if I had a problem, I could phone a call center, but just not set foot inside a branch! Sounds insane now, but that was my reality.

Back in the UK, I signed up with no branches provider First Direct, sold on the advertising about its customer service levels. Whoever was getting the benefit of those it wasn’t me. The end came when ‘for your own good, sir’ I had my card blocked because I made a ‘suspicious’ transaction. Said transaction was my tax bill payment and you’d have thought that having HMRC as the recipient on the tax deadline day might have given someone a clue as to the nature of the payment, but no.  When I queried why I had my card blocked, the response finished me - “It’s not your card, sir, it’s our card which we allow you to use”.  Bye bye First Direct!

Banking with the legacy providers remains customer-hostile. When I set up my own company, I toured all the major banks to set up a business account and in every case I was looking at having to wait weeks for an appointment just to see the right person to help me.

In the event I moved everything - personal and business - to Metro Bank, a challenger bank in the UK that has - to date - got things pretty much right, albeit with a couple of stumbles. But I was able to go into a branch, set up an account quickly and get going. The ‘inertia’ problem didn’t come into play because everything was made easy and painless.

When I’ve lost my cards, which has happened on a couple of occasions, it takes 10 minutes for them to be replaced on the spot if I go into the local branch. Contrast that with the hell of dealing with Barclays and Nat West to get my lost credit cards cancelled and replaced, both of which had me on a tortuous call center interrogation for the best part of half an hour.

Would I ever move to a digital-only provider? Here’s where perhaps I’m ‘guilty’ in terms of the survey reports. I do have a couple of digital-only accounts - a personal one with Monzo and a business one with Starling. They were both set up as emergency accounts when (unfounded) rumors about the viability of Metro were circulating a few months ago and I realised that I was exposed in terms of cover for my money.

Both were set up quickly - again, trying to get a secondary business account from a legacy provider was going to be a month long process if I was lucky - and efficiently. It was all very impressive.  And yet both accounts sit empty. They’re a fiscal comfort blanket I suppose, although until reading this study that characterisation hadn’t really occurred to me.

Of course the other point that comes through from the study is that if most of us are now keen to do our banking online, the burden is on the legacy providers to do more than just make it a pain to move away from them and to deliver digital services and experiences of their own that make consumers want to stay with them.

In a follow-up to this report tomorrow, we’ll take a look at the progress - or otherwise - being made by leading banks on both sides of the Pond on that front.