Has mobile become the battleground for banking?

It was in Spring 2011 that the Royal Bank of Scotland launched the world's first fully functional banking app. It was initially available only on Apple devices, but was soon rolled out to BlackBerry and Android users. In the past 12 years we’ve witnessed a revolution in this sector, whereby it's never been easier for consumers and businesses to manage their financial transactions.

As a result, the mobile market has become one of the most lucrative ways for businesses to engage with their customers and expand their reach. In fact, in the UK, we spend an average of 4.2 hours a day on mobile and spend over $3.8bn on apps annually.

Like many other sectors, banks - and more recently - their challengers, have recognised this opportunity and shifted attention toward increasing their digital presence. However, macroeconomic issues, such as the global pandemic and rising inflation, can have a major impact on user engagement, and as a result, shake up the leaders in the fintech space.

The neobank revolution

Shortly after the financial crash in 2008, neobanks came onto the scene, looking to drive convenience for customers by offering digital-only financial services. These companies aimed to move customers away from traditional bricks and mortar institutions, and toward their digital platforms. For some time, these alternative providers struggled to attract a large number of customers, given the affinity to, and trust in, traditional banks. However, today the story is entirely different.

Monzo, one of the largest neobanks, launched in 2015, offering all the usual banking services but from a solely digital platform, and predominantly a mobile app. The company has since exploded to become 2022’s third most downloaded fintech app in the UK — more than Barclays, Lloyds and Halifax. Starling Bank and Chase UK also attracted major downloads in 2022, beating out traditional institutions and signalling the prominence of challenger banks in the UK market. 

While the user bases for traditional banks still dwarf those from neobanks — which is to be expected given their large existing customer bases — neobanks have managed to close the gap in user engagement. Average monthly time spent per user for top neobanks trailed traditional banks by only four minutes in 2022, indicating that their features and capabilities are driving strong user affinity.

The mobile-first generation

Neobanks appeal to the mobile-first, always-on mindset of today’s consumers. Due to the developments in mobile technology over the past several years, we expect a high level of accessibility from our service providers across every sector, and as a result, more and more apps are being developed and downloaded to meet the demand. Banking is no exception.

When it comes to the age groups most likely to engage with apps, 18 to 24-year-olds lead over other generations. These users have grown up with mobile technology and as a result, the provision of digital services is expected.

One of the benefits that digital-only banks have over traditional institutions is their ability to quickly roll out new services and adapt to market changes. Financial institutions often have the burden of legacy infrastructure and large data cores, which can take time and huge financial investment to overhaul. In contrast, neobanks have been built to lend themselves to the digital, allowing them to accelerate new features and respond to demands in their user base 

But it’s not just Gen-Z driving engagement in this mobile genre, economic headwinds are also prompting other generations to adopt these platforms.

Easing economic headwinds

The cost-of-living crisis has been wreaking havoc on business and personal finances across the UK over the last two years. As a result, an increasing number of people are turning to fintech apps to help manage their spending in ways which traditional institutions are unable to.

Nude, an app which aims to make it easier and more accessible for young people to access the Lifetime ISA scheme by demystifying the process in an appealing mobile-first way, has experienced major success over the past year alone.

The apps’ engaging user experience and educational content have helped to elevate a once cumbersome process. In less than a year since its launch in 2022, Nude ranked as the fourth most popular finance app by daily downloads on Google Play, beating out large, established players like Monzo, Barclays Mobile Banking and Lloyds Bank Mobile. The rapid growth of Nude in 2022, highlights the reliance that mobile users have on apps to respond to socioeconomic changes.

These external factors also continue to push users toward neobanks, which promote user-friendly, digestible financial advice and services. Monzo, for example, allows users to track how much of their money per-week is being spent on shopping, eating out, entertainment, and more — a feature that sets it apart from established brands. Providing this level of support around budgeting and spending trends is an important way to support customers during periods of economic uncertainty.

Competition ahead

Established financial institutions will undoubtedly be feeling the heat from neobanks and fintechs, as they continue to close the gap in user engagement. While the larger institutions will likely stand to benefit from long-standing recognition, brand trust and deep experience in the market, without a razor-sharp focus on digital transformation, they risk isolating themselves from the digital-first generation. Looking ahead, we'll see established banks expanding their digital offerings and focusing more investment on their digital platforms and advancement of mobile-first feature offerings, than their branches. For those that want to thrive, not just survive, this is imperative.

Lexi Sydow is head of Insights at data.ai, which combines combines consumer and market data with AI to provide business insights