An Open Letter to the Challenger Bank

Open Letter

Preface: Several tens of Challenger Banks are coming to change the Financial Services landscape in the UK.

If you’re a banking consumer that is not in our oh-so-controversial Financial Services industry but are counting the days till all these new Challenger banks in the UK hit the market so you can finally have the experience you deserve when you handle your money, you’re right to be excited, they will deliver much needed awesomeness by comparison to what you have today. Please avert your eyes, we have some boring FinTech-y things to discuss and they may give you anxiety. Don’t worry, everything will be fine by the time it hits your mobile screen.

If you are a UK incumbent also avert your eyes, this is not written so it makes you feel less inadequate just because some of these issues are clear to you. You’re every bit as behind on your to-do list as you were when they came in the market, you’re exponentially less potent in achieving any meaningful understanding of the consumer and acting on it and the fact that the first wave may get some things wrong ,does not buy you that  much time, even if they all vanish by 2016 PSD 2 is still upon us and anyone can still get a banking license. Hurry up and wake up. 

***Warning – Major Spoilers Ahead!*** 

Dear Challenger,

Pull up a chair and let me get you a cuppa, this could take a while.

Let me start by saying I’m here to kill some of your dreams. I’d apologise in advance but it’s necessary cruelty, you can hate me all you like but we both know this is not about me and not about you but your consumer.

I buy it that you love your consumer already, Challenger. I really do! I think you’re honest in your pursuit of a better way for them, I know you’re right to be indignant in your assessment of all thebanks you’re challenging on their behalf, I believe that you’re feeling less like a new business owner and more like a newly minted social worker, I am not doubting any of that enthusiasm. Go dreamers, heaven knows the consumer needs all the help they can get.

But they won’t get it unless we clarify some terms. You don’t need a pen, you can take notes on that iPad.  The terms we’re here to discuss are almost the opposite of my usual easy-to-mistake-for-fluffy “let’s think of people’s feelings” stance and that’s because you, my dear Challenger, have nearly got that right. You get what Millennials want, what busy professionals are frustrated with, how to make cool experiences that delight and you use fancy and oh so delicious terms like “Invisible Banking” so I’m proud and hopeful.

We’re here to talk about four things without which you can forget it – pack your bags and go back to the incumbent you want to escape. Those four are: core technologyproduct  and two key business terms – adoption and retention.


When I say “technology” I need you to tell me what you bought to make this happen. Or built. No matter. Open that box, what does it have in it? A core banking system you say? Great. You’re anxious because you bought what you used to think you hated in your other job and you’re not sure it will hold up to scrutiny? Don’t be, they’ll get smarter with you, pull them along. You’re worried because you’re not positive the mainstream tech you’ve pulled together in your own makeshift box may make it disintegrate? That’s possible but you’ll deal with it. Either hating your backend provider or wondering if your hacks will hold is part and parcel. Welcome to being a banker. I’m here to ask you to look for two things in that box. Get your arm in and tell me if you feel anything shaped like a sturdy transactional categorisation engine and something that feels like an automatic aggregation framework. Found them? Marvelous, we only need to worry about some of the other things now. You can skip straight over product even, those two will keep consumers in love even if you have none.

Wait what? You only found one or worse still, neither? Uh oh, Huston we have a problem. We don’t have a minor, easy to fix in time problem, we have a major one that will not let us get those two magical things called Adoption and Retention because you know what? You won’t be able to show the consumers what they did with their money and what they did in the places they spent it in, because you do know in your heart of hearts that no matter how many new features you think of, and how amazing your APR proposition is, you won’t be anyone’s primary bank, right? At least not to start with. Not for a long while and they need to kinda look at the entire picture of their finances or they won’t come by… You need categorisation to show them WHAT and you need aggregation because the WHERE happens in several places and primarily elsewhere.

Yes, yes, finding (and affording) those bits of technology is nearly impossible and your provider had no such thing and utterly impossible to built so your team and your other technology providers said you’d be fine without them, that you can wait for the change in legislation to add it easily later on once all the APIs land in your lap, or better yet wait, did they promise you that your sheer awesomeness will make you the primary bank of choice to your consumers immediately and even more, that if you gave them aggregation you wouldn’t force them to make a choice. You’d be the spouse ready to accept an open marriage rather than threaten to take its awesomeness out of the equation if full exclusivity and eternal fidelity is not restored. They will have to recognise your value and promptly close their HSBC Premier account or just never get that doggy bone in a Metro for crying out loud!


Please settle down, I can see it, you’ll be their everything, got it. Which brings me to Product. What are we giving them? Beautiful funky cards. Mustn’t forget those. Savings of course. That’s easy and that’s where all the money’s made. Loans as you’ll maybe partner with some Alternative Lending FinTech unicorn. P2P payments with a twist as they all need to split bills and the UK has no Venmo. And of course Current Accounts where they will see all this and sort what they are really left with, pay bills and get their salary in. You can wait with mortgages or investment or even SME awesomeness if your target is the main street consumer. Wait what? No payments? It’s ok, we can integrate the Apple and Samsung later, maybe you’re right. No lending as it’s too much hassle for now? O..k… I’ll stop you right there because if what you are about to say next is no Current Accounts either then Houston we have an even bigger problem and not a fixable one.

*Sigh* Didn’t we just agree you want to be their primary everything day one and that’s why you’re not getting aggregation? Well what do we do now because if you don’t give them a way to get paid and pay they’ll have to get it elsewhere, surely you understand that? Dear oh dear… let’s see what we can still do to save this.

Adoption and Retention

Adoption first – look into the coffers, please. Don’t tell me what you see, this is an utterly rhetorical question. Deep? Loads of pounds left after buying that back-end, hiring those ex-bankers and paying for that license? Enough for the reported, disputed and dreaded cost of acquisition? What did you budget for it? 50£? 100£? 500£? How many people need to move to your new bank to make this work? How many of the other 26 new banking propositions will you have to wait out? Would getting as many customers as the only other challenger be enough? I’m referring to Santander, dispute it all you like, but they kinda do that now in the UK. Of course you also have to wonder – would their business model work in isolation with only 2M consumers or is it just because they own the rest of the banking universe elsewhere that they do well? Ok maybe not 2M but surely you must be shooting for 1 Million consumers in 3 years? No? 500k? Ok 500k – let’s see what that is for a conservative 50 quid a pop. Wow that’s still a lot of dough. Are we good? Great, now all we need to worry about is how to keep them once we get them – retention. A few million short? I’m afraid we’re hitting a dead end.

See this is the deal – it’s a simple equation – if you give them the needed technology and a full stack of product, then you don’t need to buy them, you’ve brought them so much value word will eventually spread and you’ll quickly grow organically when the entire customer base finds out how you are the Holy Grail of banking but that’s not your plan is it, so you need to afford acquiring these customers to get any adoption to your semi-valuable-but-shiny-features.

Ok, let’s imagine you’ll go out and get a few more tens of millions to either buy more tech or pump up your product offering before you go live or pour it into aggressive TV campaigns and get some people to try you after we did. Now all you need to worry about is Retention. That they stay. That you build that mythical trust. That you keep them delighted. Except you don’t because this part you have right, this is the quality of the Experience and that’s going to be there. If you sorted the Tech or the Product and you managed to get Adoption, you’ll get your Retention, you’ll be awesome and make them fall in love and want to stick around, that will be easy and magical.

It’s only here that you can count on the Social fun, the Gamification, the Telepathic Authentification, the new Free-2-Spends, the Causes, the Offers, the Notifications, the Trading Simulations, the Savings Ladderboards and all the other exciting, hopefully addictive features you dreamt that will grab them by the heart. But to get here you need to have sorted the steps above.

So dear Challenger, to survive you can miss one of these three but not all three irrespective how much awesomeness you packed in the Experience. Either strong tech (categorisation and automatic account aggregation) or compelling full product stack (current accounts being a sine qua non condition to engagement) or money for adoption (loads and loads of it so you buy these people and then pray to the Gods of banking they stay till you fix the other two). Pick your poison.

That’s to survive. To thrive and succeed you need it all. Tech, Product, Adoption and Retention aside from your undoubtedly beguiling Experience.

I’m sorry this was upsetting and please don’t think it is too late, you can still change course and get yourself in shape, of course you can, you’re not one of them old, stuck mammoth banks and we all need you to succeed, we really are rooting for you and would like you to see you do well for all our sakes.


A Hopeful Future Customer

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