(London, UK): The 1990s saw the emergence of the first wave of Challenger Banks in the UK – including Virgin Direct (1995), Sainsbury’s Bank (1997) and Tesco Personal Finance (1997). Their intention was to take on the established big banking players. However, as time has passed, they have moved in unintended directions.
With the recent purchase of Tesco Bank by Barclays, the imminent purchase of Virgin Money by Nationwide, and the ongoing process for Sainsbury’s Bank to identify an appropriate exit route for its full suite of banking products, the established banking players have taken control of the core original Challenger banks. The ownership of M&S Bank as a wholly-owned subsidiary of HSBC (since 2004) can be added to this list.
Increased regulation—including interchange restrictions, higher capital requirements, the cost of capital, the cost of rewards, and economic turbulence—has made it too challenging for these entities to operate independently. What might this mean for the more recent Challenger banks?
The newer wave of Challenger banks, including Monzo, Starling, and Revolut have taken a very different approach to differentiate themselves from the mainstream. Whilst the 1990s wave focused on leveraging established brand names and existing distribution channels, the more recent wave has emphasized innovation, technology and a digital-first approach.
Slick, digital sign-up processes have attracted significant customer volumes for these players (Monzo with more than 7 million customers, Starling with 3.6 million, and Revolut with over 30 million globally). However, profitability remains a challenge for many.
“If the mainstream players feel they need to compete more directly, there are three possible approaches to consider,” says Simon Cottenham, Head of International Partnerships at Auriemma. “Spin-off their own digital banks to compete head-on with the Challenger banks, invest in the digital approaches and apply these to their mainstream products, or ultimately look to invest in or buy-out a Challenger bank and bring their capabilities in-house.”
The future of Challenger banks is murky at best. It remains to be seen if the new wave will be able to compete in the long-term with their largest competitors, or ultimately be absorbed by the high street banks like the original Challengers.
About Auriemma Group
For 40 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or contact Simon Cottenham at simon.cottenham@auriemma.group.
(London, UK) Artificial intelligence (AI) has emerged as a key focus for retail banking operations in recent months. Auriemma Group’s latest series of roundtables tackled the ever-growing space, discussing current usage of AI solutions and how members plan to utilize AI to further enhance their offerings.
“There’s a significant amount of interest in AI across all operational areas,” says Nicole Toussaint, Senior Manager of Industry Roundtables at Auriemma. “Although we’re seeing some hesitation in deploying it, I expect we’ll see some big moves by industry players over the coming months.”
Across all operational areas, firms are hoping to leverage AI to assist front-line employees with navigating their knowledge management systems. This would hopefully improve the accuracy of agent work and help to reduce lengthy training periods. Additionally, firms are considering using the tool enterprise-wide to produce meeting minutes and to assist in communications drafting.
In the Collections and Recoveries space, firms hope to use the tool in their contact strategies. Roundtable members believe that AI can make their contact more effective by creating more bespoke strategies. The technology can help firms decide the optimal time to contact customers, the most effective channel to make contact, and the most engaging messaging and content to use.
Fraud Departments see an opportunity to use AI to improve their current fraud detection models to identify bad actors and fraudulent payments more quickly. Several firms have already partnered with vendors who provide AI-powered fraud mitigation tools.
On the Servicing side, firms are discussing improvements to their chatbot offerings. Currently, many chatbots are FAQ-based, but firms believe that AI can revolutionise the chatbot experience and improve satisfaction scores in the channel.
“We see a clear opportunity to leverage AI to provide dynamic call scripting to front-line agents,” says Toussant. “This would take some of the pressure off agents when servicing and allow banks to provide a more tailored, well-informed customer experience.”
In the Disputes and Chargebacks space, one firm is already using an AI-integrated optical character resolution (OCR) tool to read customer documents provided as proof in a disputes case. Many firms hope to use AI to gain efficiencies in the disputes process. They believe that the tool can help guide agent decisions as they work cases by pulling in bank, scheme, and regulatory policies.
Similarly, in the Complaints space, members see an opportunity for AI to help complaints agents while investigating. AI can not only analyse the materials provided by the complainant but also bring in insights from previously decisioned cases and Financial Ombudsman (FOS) decisions. In this process, the technology can also guide the agent in classifying the complaint type. Some also noted that AI could potentially assist agents with drafting final response letters.
This topic is expected to become an evergreen topic at Auriemma Roundtable meetings, especially as firms identify new use cases and as Auriemma brings in experts from the field to drive further thought leadership.
The next set of roundtable meetings are scheduled for June and July at the Edwardian Hotel in Manchester. If you or any of your colleagues are interested in attending as our guests, please contact us via roundtables@auriemma.group.
About Auriemma Group
For 40 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or contact Nicole Toussaint at nicole.toussaint@auriemma.group.
(London, UK): Mercedes-Benz recently announced a new partnership with Mastercard to offer embedded in-car payments using a fingerprint sensor at petrol stations in Germany. The new service, made possible via Mercedes Pay+, will be available to use at 3,600 service stations across the country, eliminating the need to enter a PIN or authenticate with a mobile device.
Though this is a world first and has created a lot of buzz around the industry, usage is limited to less than one-fifth (17%) of the total amount of service stations across Germany. Mercedes says that fingerprint payments from the car will be extended soon to other vehicle-related services and to other European markets.
“Like with all new payment technology, for it to become widely used there needs to be integration on both sides of the issuing and acquiring network” says Simon Cottenham, Head of International Partnerships at Auriemma Group. “Before contactless terminals became widely available at retailers and on public transport, contactless cards acted no differently to traditional chip and pin only models, so how and when service stations and other vehicle-related services roll out the ability to accept this innovative way to pay will be key to its success.”
Mercedes and Mastercard’s strategic, limited rollout will help inform how consumers will utilise this type of technology in the future, and how willing they are to adopt.
(London, UK): Apple announced this month that it is harnessing Open Banking APIs to deliver new features to Apple Wallet users. As part of the beta version of its iOS 17.1 update, customers can check their current account balances, transaction history and available credit directly in Apple Wallet. This will be rolled out to all customers when iOS 17.1 is officially released later in October. The current version is compatible with Barclays, HSBC, Lloyds, Monzo, RBS and Starling and is expected to expand to additional banks over time.
These improvements may further differentiate Apple Pay usage from its competitors Google and Samsung Pay. According to Auriemma Group’s latest issue of Cardbeat UK, Apple is the most popular of the bunch, with 17% of credit cardholders currently using Apple Pay, compared to 14% for Google Pay and 5% for Samsung Pay. Usage of Apple Pay notably rises to 47% among those ages 18-34.
The use of Open Banking APIs gives cardholders yet another reason to leave their wallets at home. Research from global card issuing platform Marqeta found that 73% of mobile wallet users feel confident enough to “leave their wallet at home, and only rely on their mobile phones for making payments.”
“Apple’s latest integration is another positive step for Open Banking and mobile wallet usage in the UK,” says Simon Cottenham, Head of International Partnerships at Auriemma Group. “Where previously one could view their Santander current account balance within their HSBC app, Wallet is a centralised app that is already used by millions of UK consumers today. As ever with Open Banking technology, compatibility with a broad reach of banks is key to its customer appeal and success, so Apple should focus on broadening its reach while it is ahead of the curve.”
Auriemma Group will continue to monitor this space closely in upcoming Cardbeat studies.
Survey Methodology
This Auriemma Research study was conducted online within the UK by an independent field service provider on behalf of Auriemma in July 2023, among 801 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.
Secure your spot at Auriemma’s upcoming Drinks Reception and Keynote Speaker Event!
Auriemma is excited to announce our upcoming drinks reception and keynote speaker event, Debit Cards, Current Accounts and Payments in an Era of Open Banking, on the 28th of September at the St. Pancras Renaissance Hotel London from 18:00 – 21:00 GMT.
The keynote speaker at the event will be Nationwide Building Society’s Payments Director, Otto Benz, who will be sharing his thought leadership and operational considerations when updating debit-oriented legacy technology and other payments mechanisms.
In what promises to be a riveting discussion, Otto will also share his thoughts on the impact of other future developments, including Central Bank Digital Currency (CBDC).
If you or your colleagues would be interested in attending the event, please reach out to Nicole Toussaint at nicole.toussaint@auriemma.group.
(New York, NY) Artificial intelligence (AI) continues to expand, with recent advancements in the technology being offered directly to consumers. The capabilities of AI chatbots, like ChatGPT, raise questions about the future of AI, and its integration into banking and payment experiences. Auriemma Group’s latest issue of The Payments Report reveals current usage levels of AI chatbots, comfortability with AI solutions being utilized by banks and retailers, and how likely consumers are to turn to AI chatbots for financial advice.
ChatGPT is still in its infancy, but 15% of debit cardholders have used it. Importantly, this represents a 68% take-rate among those familiar with the service. Other providers, such as Google’s Bard, DiabloGPT, and YouChat all boast similar take rates, according to Auriemma’s research.
While the casual ChatGPT user may prompt the service to help write an email or provide information on a topic, the AI language model can also provide financial support. This would be welcomed by 40% of cardholders who reported that they are likely to use an AI chatbot for financial advice, up 6-percentage points compared to Q4-2022. And this figure rises for Gen Z and Millennial cardholders, 60% of whom would be comfortable.
“Cardholders are broadly aware that AI is imbued in some of their bank’s automated offerings,” says Jonathan O’Connor, Senior Manager at Auriemma. “But the question is how banks can use AI to further support their offerings in smart ways. Some applications of the technology would be more welcome than others.”
Unsurprisingly, exposure to AI integration within certain tools appears to increase comfortability. According to Auriemma’s research, 62% of debit cardholders would be comfortable with an AI solution offered by their primary bank aimed at identifying potential fraud. Slightly fewer say the same about using AI to provide customer service (52%), assess credit worthiness (47%), or predict stock prices (45%).
Over half of consumers would also welcome AI solutions offered by retailers they shop with frequently. Cardholders are most comfortable with retailers using AI for fraud leads (64%), followed by price comparison tools (64%), customer service (53%), and personalized shopping recommendations (52%).
“For banks, the most immediate use case for AI is to support financial health initiatives,” says O’Connor. “Cardholders are already accustomed to chatting with AI to help solve straightforward issues. Utilizing the technology to connect cardholders with solutions or resources aimed at alleviating financial strain or enabling smarter spend decisions is a clear next step.”
The proliferation of AI chatbots creates an opportunity for banks and retailers to expand their offerings. Services like ChatGPT raise overall consumer awareness with AI’s capabilities and could increase comfortability with the technology being used by other providers they trust. As these services grow and increase in popularity, it will be important for banks to keep up should they want to continue to be cardholders’ primary destination for financial advice.
Survey Methodology
The Payments Report
This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in March 2023 among 800 adult debit cardholders. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying.
About Auriemma Group
For more than 35 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London. For more information, call Jonathan O’Connor at (+1) 1-646-437-6116.
(New York, NY) Mobile payments give cardholders the chance to lighten their physical wallet, but those in states like Arizona and Maryland may be able to go without a wallet altogether. In March, Apple announced that Arizona would be the first state to offer its locals the opportunity to digitally store their driver’s license or state ID in the Apple Wallet, and Maryland soon followed. But what impact, if any, will this have on mobile payment usage overall?
Auriemma Group’s latest Mobile Pay Tracker study found that ID provisioning could increase mobile payment usage notably. According to the research, 67% of mobile payment users and 20% of non-users would be interested in adding an ID to their mobile wallet. And nearly half of those interested say having an ID available in their mobile pay wallet would make them use it more. This is particularly striking among non-users, 45% of whom would begin using mobile payments as a result.
“With the addition of IDs, mobile wallets take one step closer to being a physical wallet substitute,” says Jaclyn Holmes, Director of Research at Auriemma Group. “Though we don’t anticipate mobile wallets to fully replace physical ones, this addition will make leaving home without one a greater possibility should your state provide the option.”
However, mobile payments have some work to do if they want to convert naysayers. 62% of those uninterested in adding an ID to their mobile wallet say they don’t like the idea of having all their personal information saved to one device, and 50% don’t think it would be secure. Over half of these cardholders also don’t trust mobile wallets enough to leave their physical ID at home, saying they would still carry it with them anyway.
When looking at those interested in adding their ID to a mobile wallet, however, 69% are comfortable leaving their physical ID behind. This is most prominent among younger cardholders, suggesting that over time comfort may increase.
“Mobile payments already allow consumers to add their payment cards, plane tickets, membership cards, and more,” says Holmes. “Adding IDs is the next logical step and is likely to promote mobile payment usage overall. As issuers consider their relationship to mobile payments, it would be worthwhile for them to envision a future where digital wallets are more commonplace, even if only supplemental to the physical wallet.”
Survey Methodology
Mobile Pay Tracker
This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in July 2022 among 2,182 adult mobile pay eligible credit cardholders. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying.