Trust-based UX is the secret to the success of challenger banks

14 min read
Article by Erika Kramarik
Full-Stack Marketer

If I say ‘bank,’ anyone older than 30 will immediately think about paperwork.

For the younger millennial or the Gen Z user, the incumbent bank experience is an out of world experience. Someone who is used to next-day delivery from Amazon, on-demand entertainment from Netflix, getting a personal trainer through a fitness app, or a wash of laundry picked up and delivered the next day, the idea of opening an account through the procedures and hoops of an incumbent bank can be a feeling akin to time travel.

You sign a stack of papers to open your account, that you’re supposed to read – but do you? (please do!), you sign another stack of papers if you want to use your account through a mobile app, and then you have to wait for 7 to 14 days until your debit card arrives while twiddling your thumbs.

Your options for what you can do with your account online are pretty limited:

  • Send transactions, but if it’s international or towards another bank, you might get an extra fee for that;
  • Set up a new account in the same or a different currency, but you might get extra fees on that as well, depending on the bank;
  • Set up a savings account;
  • Inquire about loans, but if you actually decide to get one, you’ll have to go back to a bank agency to sign another stack of papers;
  • Call into the bank (or walk into an agency) to have your debit card blocked if it gets stolen or if you lose it.

Enter the challenger banks

It’s no surprise then that challenger banks jumped on the obvious friction points and built customer-centric products that responded specifically to the issues that pained clients the most.

What is a challenger bank?

Challenger banks are digital products that operate as retail banks. They have a license to provide financial services, having gone through all the legal procedures to act as a bank for their customers. And they continue to do this as they add new services to their product. They also stand out through the fact that they don’t own any physical agencies. The mobile application every person uses on their smartphone is the bank they interact with. They’ve also set themselves up to compete against established, incumbent banks.

Household names in the challenger banks space are Revolut, Monzo, N26, Transferwise, Monese, or Starling.

A Deloitte report from 2020 summarises that if incumbent banks want to have a chance as clients migrate towards challenger banks, they’ll have to approach a customer-centric approach themselves. And that translates to:

  • Voice of the customer research, focus groups to understand needs and preferences;
  • Customer segmentation and persona definition for valuable target segments;
  • Experience and proposition design to emotionally connect with customers.

In other words, changing their well-established approach that puts procedures and legalese first into an approach that puts the customer’s experience first. And that’s going to be hard, especially considering how much customers who switch to using challenger banks love the product experience.

The key market segments of challenger banks love them

A study published by the global management consultancy A.T. Kearney has found that more than 1 in 5 UK consumers (21%) and 1 in 3 millennials (32%) now state that their primary banking relationship is with a challenger bank.

Looking at the younger generation, Gen Z holds up to $143 billion in spending power. Nearly three-quarters of millennials and Gen Z consumers would consider getting all their financial services from a single bank or credit union. Two-thirds say the pandemic made them appreciate online and mobile banking more than they had previously.

It’s not coincidental that these are also the market segments who have grown up as digital power users and have little to no experience with life before smartphones, internet, or what it means to walk into a bank agency and sign a stack of papers to get things done with their money.

Millennials and Gen Z users have lived with the possibilities of getting all sorts of things done through their devices. Their market segment becoming attractive for challenger banks and a hard segment to hold on to for incumbent banks makes sense for any user who has gone through the experience of using both types of services.

The challenge remaining for banks like Revolut and Starling is how to become profitable in the long run. But do keep in mind that:

  1. Their focus at the moment is still scaling, so all revenue and investment will be directed towards those efforts, as well as developing services that can bring in profit;
  2. Considering how all challenger banks are a digital product first, there’s no denying that the way they’ve built trust with their users is what is allowing their business to scale in the first place.

So, what is the secret ingredient to this trust?

Good-old fashioned, amazing user experience.

And this part is what we’d like to dig into deeper here.

How do challenger banks build trust with their users?

We’ll spend the rest of the article walking you through several flows of challenger banks to showcase why they don’t need physical agencies to build trust. How their attention to UX and the user’s needs and pain points have built trust to the point where people will…well, put their actual money inside a digital product.

Onboarding into a challenger bank

All challenger banks allow for in-app or online sign-up. To catch up, most incumbent banks have also started offering this service in the last years. But a look at this chart counting the number of clicks to open a bank account shows how simple (or complicated!) the process can be.

Let’s take a look at how Revolut manages its sign-up.

Notice a couple of things:

  • You don’t have to fill out more than 3 things per screen;
  • These 3 things are very clearly grouped together AND it makes sense for them to be grouped together;
  • You get a celebration screen when you’re done. Also, it’s clear that the task you set out to do is completed;
  • The next step is topping up, meaning you can add money to your new account. But you can also explore Revolut’s app instead of doing that. The catch is: you’re not really done with the sign-up until you verify your identity (send over a selfie and a photo of your ID), but it’s not mandatory that you do this in one sitting (and well, you might not have it on you, or sit in the right lighting to snap photos and selfies), so… it’s ok to do it later!

Revolut’s sign-up process is a good example of breaking down a complex process into manageable chunks by considering simple questions:

  • What information does a bank need from users so they can set up the account?
  • Does it need all that information at the same time? (it’s surprising how often the answer to this question is, in fact, ‘no’).


Transactions

For all the challenger banks, the steps to make a transaction are similar:

  1. You choose the receiver of the transfer;
  2. You set the amount of money they’ll receive;
  3. You insert a message to describe what the transaction is for;
  4. You review a summary of the transaction;
  5. You confirm the transaction with your PIN or FaceID.

What sets apart challenger banks from incumbent banks isn’t the ease of the process, which you’ll find in many of the mobile apps of the larger banks as well, but the fact that they don’t charge exorbitant fees for international transfers. In fact, one of Revolut’s main growth engines, as they started out, was the possibility to transfer money internationally, at accessible rates.

Monzo transfer flow

 

N26 simplified moneybeam

Saving money

Saving is a skill you learn, yet it’s something every person struggles with. Your ability to practice this skill also intersects with your socioeconomic background, the role models you’ve had in your life, and the realities of managing your day-to-day stress.

So, it’s interesting to jump inside a challenger bank’s product to see how saving is treated as a series of user flows, compared to what an incumbent bank can do.

One way challenger banks approach saving especially is how they’ve made content part of the design process and, in this way, the user experience, as well.

If you look at content design elements of the saving user flows, several things will immediately jump out to you.

Redefining the concept of ‘savings’

The process is about saving, but it’s also important to keep it light and accessible. This is reflected in how the saving spaces are called by the different challenger banks:

  • people save in vaults on Revolut;
  • People put money in Jars on Transferwise;
  • People send money in personally named spaces in N26.

Messaging

  • When you set up a “savings account” (a vault, a jar, a space), you’ll have an empty state message waiting for you to set expectations, that usually has an encouraging tone;
  • The encouraging messages are kept along the way, because challenger banks have understood that saving is not a one-man-on-an-island journey, but a marathon, where every tiny success and progress matters;
  • Being able to set goals of any amount and getting a celebratory message when you’ve made it is a big deal (whether you’ve just saved for a pair of fancy shoes or the down payment on a house).

Check out also the other features a challenger bank offers when it comes to saving, and compare these to an incumbent bank.

Incumbent bankChallenger bank
  • Set up a savings account (or more, but each has administration fees)
  • Set up a deposit
  • Educational campaigns
  • Set up a saving “account” (or more, with a specific goal for each)
  • Set up rounding up (where each expense is rounded up, and the difference sent to the saving account)
  • Share saving accounts with other people (N26)

If incumbent banks put the onus of saving on the customer (everyone saves what they manage to save for themselves and they’re on their own), challenger banks, with their holistic approach of the customer experience, understand that positive habits don’t happen in isolation. They’ve turned their product in a trusty sidekick that supports every saving effort, small or large.


Reporting

Spending analytics is another core user experience offered by challenger banks that wouldn’t be possible if their service wouldn’t be a mobile product.

There are two main approaches in helping people understand their spending as they use their challenger bank card.

Categories-based reporting

In categories-based spending tracking, users can set up their own categories, or use automated categories as they’re created by the app.

Afterwards, they have two options:

  • Track their expenses passively;

Look over their expenses at the end of each month and make decisions for the next month based on their expenses patterns of the previous month.

  • Set budgets for each category;

Have more control over their spending by setting a certain budget for each category. In this way, the user can monitor their expenses proactively.

Location-based reporting

Monese, on the other hand, documented their UX journey in building location-based spending tracking and smart transactions in an older blog post.

As with savings, they discovered that people struggled to track and manage their spending on their own.

Source

To enrich transaction information, they used location databases and online resources to match the name of the merchant, the address, and a lot of other details. They built an in-house merchant service, so they could show the right logo for most businesses and treat chains and stand alone locations differently.

The result was a drastically improved location-based transaction history, that could be filtered based on business (chain) name, time period, and show total budget spent in one place.

Having all this data in one place also allowed for a different approach to categorisation. Automated categorisation always brought with it a degree of error, especially when people would do their shopping at large merchants with a variety of options. But add in the layer of location-based shopping and manual editing (people tend to buy the same stuff from the same places), and the tracking could be automated correctly much quickly.

In turn, this allows every user to track their spending better. To add a layer of gamification to how people track their spending, Monese inspired themselves from music charts and created top spending categories.

Source

Support

When challenger banks are set up as a digital product first, it also means that Support and Customer Success needs to be translated into an in-app experience as much as possible.

All challenger banks offer in-app chatbot support, that gets pushed to a human specialist if the user requests further help. Support is available almost 24/7 for all banks, completely adding an edge over incumbent banks, where many interactions are call centre or physical agency-dependent during working hours.

There is some waiting time for free users, as paying users to have priority for in-app live chat. Paying users also have the option of getting phone support, if that’s something they’re more comfortable with.

How users freeze a card

All challenger banks have treated freezing or locking a card that’s been lost or stolen as a different user flow. As there’s a strong sense of urgency associated with this process, users can either follow the in-app flow to freeze the card digitally (e.g. Revolut, but all challenger fintech products have this option), or call a special number that takes calls only for this specific case.


Challenger banks build trust through UX

When you break down core user flows in challenger bank products, is easier to see the patterns of how their design decisions are made to help build trust.

  • Large tasks, like onboarding, saving, and transaction reporting are broken down into manageable chunks. The tone is kept serious where it needs to be serious, but challenger banks also understand that money is something people have to manage every day, so it’s alright to be playful and encouraging.
  • If a task can be simple (such as making a transaction, freezing a card, or talking to support), that task will be designed to be as straightforward as possible.
  • Whether you’re working your way through a simple or complex flow, there are no moments of confusion regarding what’s happening in the app: empty state messages, feedback messages, error notifications, micro-interactions, success messages, they all come together to give clear signals to the user regarding their progress.

We’ve mentioned before that a core difference between how challenger banks and incumbent banks approach their services is that the first is built to be customer-centric. Nowhere is that more obvious than in the time and effort put into helping people manage their money through the saving and spending reporting features.  Because the research they’ve done in this space has shown them that saving money and tracking expenses is a job in itself, and it’s strongly connected to everything else that happens in a person’s life.

Challenger banks have established themselves because they understood that the world has become too fast and complicated for simple and disconnected services.

And the products that will make it will be the products that will address not only obvious pain points but will also have teams behind them that work to understand how the user’s context works to create those pain points and address those as well.

Because trust is built when a user feels they can get jobs done, and they feel the product is not leaving them out to dry. And when a product gets it really right, as challenger banks do, they also build a feeling of “we’re in this together”.

Erika Kramarik Full-Stack Marketer

Erika is a full-stack marketer passionate about the intersection between technology and social impact. She mixes research with content design and a human touch to help people and startups succeed in delivering value through their work. When not writing or talking to people, you’ll find her reading or quoting Hamilton for any life situation.