Fewer than one in 10 British consumers are using neobanks to manage their money
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UK adoption of digital-only challenger banks is currently paltry: Fewer than one in 10 British consumers are using mobile-only banks to manage their money, according to survey data from YouGov.
However, this apathy doesn't extend to all forms of digital banking, as British consumers appear inclined to use digital banking offerings from their traditional banks. A majority (53%) of respondents say that they use a mobile banking app from a traditional bank or building society, while 48% say that they use an online banking offering from a traditional bank or building society.
The relatively solid use of digital banking in general suggests that the big challenge for neobanks is not converting consumers to digital platforms, but getting consumers to give digital-only banking a try. Less than one-quarter (23%) of UK consumers are actually uncomfortable with online banking services, per YouGov data, leaving the neobank business model with a strong majority of UK consumers to target.
And given the popularity of mobile and online banking offerings from traditional banks, the hurdle that neobanks will need to deal with first and foremost is convincing consumers to dip their toes in the water of digital-only banking.
Here are two key strategies neobanks could deploy to motivate customers to give them a try:
- Offer new sign-up incentives like perks or bonuses. Perhaps the most straightforward way to pull in customers is to offer a clear incentive to new sign-ups. This could be a promotional interest rate for deposits that is well above the market average (as Australian neobank Xinja is doing to attract deposits), or it could even be as drastic as a cash bonus deposited into newly opened accounts. A clear and present reward for signing up could be enough to get prospective customers' attention and get them to open an account, after which the neobank would have a chance to impress the client with its features and service. The drawback, however, is that incentives can rack up costs, a serious obstacle for neobanks as they already struggle with profitability almost universally.
- Reduce barriers to access existing account benefits. In many cases, neobanks will set deposit or transaction thresholds or other requirements that customers have to meet in order to access certain lucrative benefits. For example, US neobank Chime offers overdraft protection of up to $100 for users who direct deposit at least $500 per month into their account. If neobanks lower or remove such thresholds, it could help customers who have some curiosity or only want to experiment with a neobank to get a better feel for the full customer experience - and to do so without requiring a significant investment on their part. The downside to this approach would be that such thresholds offer neobanks a way to nudge customers to use their neobank account as their primary account, and primary account status is an elusive and important goal for neobanks.
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