Challenger Banks and AltFi Platforms are Changing the Face of Customer Service
We’ve all become accustomed to “always-on” customer service;it’s hard to imagine a world in which you couldn’t order a television from Amazon, swap money between bank accounts or update insurance details at any time of the night or day. And if we have a problem, we can usually ring a 24 hour helpline or talk to an agent on live chat.
No industry has spent more money on the technology that underpins customer convenience than banking. From ATMs, through to telephone banking and up to the generation of mobile apps, banks have invested heavily in secure and reliable, customer-facing systems with the twin objective of cutting operating costs while serving customers better.
A Lost Relationship
But arguably something has been lost along the way in terms of the ‘personal’ relationship that once existed between bank and customer.
It would be wrong to hark back to a golden age when every local customer was known to an equally local bank manager, but over the last few years there has been a feeling among retail and business customers alike that when it comes to the Big Four High Street lenders, each one is very much like the others.
In some respects, that’s not necessarily a bad thing. All the big banks offer high quality online and mobile banking. So much so that it’s hard for any one player to differentiate itself from its competitors. Equally, one ATM is very much like another. So we have a high standard of plain vanilla.
An Arms Length Relationship
But there is also a sense – most acute after the financial crisis – that banks have become too product focused and process driven at the expense of delivering services that are genuinely tailored to customer need. Equally, many believe that decision making has become too distant from the people affected. For instance, an SME might find itself dealing with a succession of a bank’s “relationship” managers who have little influence over the decisions of far away credit committees.
Enter the Challenger Banks
But the arrival of Challenger Banks and alternative finance providers, some of them specialising in small business lending, are changing the game.
Back in 2016, a survey by British Banking Insights (an organisation set up to provide SMEs with information on their banking options) found that customers of challenger institutions were more likely to be happier than those holding accounts with any of the Big Four incumbents.
There are caveats here, not least of which is that the major banks offer a complete palette of services from loans and overdrafts through to currency hedging and asset finance, whereas smaller challengers tend to focus on specific functions, which they aim to do very well. So it’s not always possible to compare like with like.
But what is true is that challengers – with no legacies in terms of business model and IT – are able to build customer-centric operations from the ground up. For a small bank, this often means personalised decision making, or for a mobile-only bank (such as Atom), a great and differentiated user experience.
AltFi in Play
The arrival of Alternative Finance in the shape of crowdfunding, peer-to-peer lending and syndicated loan platforms has provided a further opportunity to redefine the relationship between businesses and providers of capital.
At one level, some AltFi providers offer a different dynamic in that businesses using these platforms are presenting themselves to a community of investors or lenders as opposed to a bank’s relationship manager, with the relationship mediated by the platform.
But the platform operators themselves are very much in the business of providing the best experience for the customer. These providers have made a concerted effort to ensure that the application is more straightforward – and perhaps less daunting – than approaching a bank, and that the whole process goes more quickly.
Good platforms also establish strong working relationship with borrowers and financial intermediaries, ensureing that they have a single point of contact to provide help and information.
The Alternative Finance industry’s competitive advantage lies in its ability to build a model for customer service from the ground-up. Traditional lenders may start to catch on eventually, but the young and nimble alternative finance sector is sure to stay one step ahead.