Presentation from Money2020 Europe 2017 with New Market Research on Challenger Banking - Devie Mohan

1. New Market Research
Challenger Banking: Is consolidation the only way forward?

2. The challenger banking space is highly crowded and still seeing new entrants every week

3. Most of them are actively choosing to be UK-based for multiple reasons..

4. Specialists
Simple product offerings such as savings account,
current account, credit cards. Vast majority of
challengers play in this space.
Generalists
Full scale and relatively conventional product offerings such as
mortgage, insurance, payments etc. Most of these are pseudo
challengers launched by large organisations.
only current,
savings accounts
plus cards plus mortgage plus insurance, investments, etc.
Product variety is limited for full challenger banks with 50% of challenger
banks offering only basic accounts.

5. B2BB2B
B2B challenger is emerging as a space of its own

6. BLOCKCHAIN BASED PAYMENTS
PAYMENTS
P2P LENDING
PAYMENTS
STUDENT LENDING
PAYMENTS
Sub-accounts for family members
Borderless accounts for travellers
Retail banking products
Current account
Foreign exchange
Current account
Foreign exchange
Credit cards
SME banking
Several fintechs have announced their plans to offer challenger banking..
Fintech offering Challenger bank offering
PAYMENTS Salary accounts
Cards

7. The ecosystem is complex, multi-layered and getting more complex by the day

8. The good, the bad, the ugly.

9. NEW CUSTOMER ACQUISITION
partnership
EXPERIENCE partnership
PRODUCT partnership
OPERATIONAL partnership
CHANNEL partnership
Focus on untapped and underbanked niche customer segments
with targeted offerings
Millennials, immigrants, small businesses, students.
Customers get control of product management
Meaningful, fast and easy onboarding steps
Simple products with transparent fee structures
Personalized products developed with real-time consumer insights
Add-on money management capabilities in the app
Lean front-end technology
Cost of serving customers through self-serve and automation
Chatbots to resolve simple queries and to up-sell and cross-sell
relevant products
Real-time app notifications for transactions, best offers and balances
Is consolidation the only future for the space?
In which areas would partnerships/consolidation work well?

10. “I wanted to make use of
A SPECIFIC OFFER from THE
CHALLENGER BANK”
We asked challenger banking
customers what they really think

11. Customers across age groups are embracing the convenience and
accessibility benefits of banking through digital channels
39%
33% 33%
27%
13%
18-25 25-34 35-45 45-54 55+
UK consumers’ demand for digital channels to
open current account
UK challenger bank customers by age groups and
gender
17% | 18-25
56% | 25-34
19% | 35-44
8% | 45 and above
Customers are fully ready to bank through digital
39% | Female
61% | Male

12. 11.1%
● The novelty of app-only banks and universal accessibility emerge as the
primary reasons for customers to try the challenger banks offerings
● However, once accustomed to the experience, these customers can be the
evangelists for challenger banks
I wanted an app because I travel a lot
3.7% I wanted an easier sign up process
3.7% I wanted a better rate
74.1% I WANTED TO TRY IT OUT
What made you take a challenger bank account?
Consolidation reason 1: The customers are not “loyal” customers yet for challenger
banks..

13. 1 Poor 5 Awesome2 3 4
4%
11%
37%
48%
48%
• Monzo offers a one touch integration with bill payments
• Osper offers the ability to turn off cards or set allowances for
the week
• Fidor has created a community on its site to seek customer
input on major policy decisions
• BankMobile sought feedback from 200 customers before
launch
• Monese allows account opening over mobile especially for
migrants
• Starling Bank promises personalized financial insights from
customer lifestyle
Better rates
elsewhere
Lack of
security
Poor
service
37%
39% 40%41%
Consumers generally don't tweet about their
banks unless it's to shame them, but at
challenger banks, it's not unusual for
customers to say thanks publicly, whether for
helping them save for a bank transfer or pay off
credit card debt.
What are the key reasons you would leave your
bank?
Customer Service experience with challenger
banks
“Experience” on the digital platform is the biggest selling factor for challenger banks

14. 1 Poor 5 Awesome2 3 4
4%
11%
37%
48%
48%
Customer Service experience with challenger banks
We asked customers to rate their customer experience with their traditional bank as
well as their challenger bank..
Customer Service experience with traditional banks
1 Poor 5 Awesome2 3 4
22%
33%
26%
8%
48%
11%
Experience is what the challengers are selling to the consumers,
and they have managed to deliver on their promises.

15. Why did you go for a challenger bank for your new bank account
rather than a traditional bank?
“I wasn't happy with the
traditional banks' apps”
“I wanted to make use of a
specific offer from the
challenger bank”
We asked first time account holders why they picked a challenger bank (most were
students)

16. If you are aware of them, why are you not using one?
32% | No branches
26% | Limited Products
21% | Trust
21% | Others
Are you aware of challenger banks?
40% | Aware
60% | Not aware
Why are non-challenger bank users not using them?
● A significant proportion of UK residents are still unaware of
challenger bank’s existence.
● Lack of branches, limited product variety and trust issues have
kept UK residents from adopting challenger banking in a big
way, but these perceptions are changing every month.
UK residents who are not using challenger banking products and services

17. MILLENNIALS
IMMIGRANTS
STUDENTS
UNDERBANKED
FREELANCERS
SMEs
Consolidation reason 2: New customer acquisition through a niche focus

18. 43%
35%
68%
28%
63%
0%
20%
40%
60%
80%
Current
account
Mortgage Savings
accounts
Credit
cards
Personal
LoansDigital channelsTraditional channels
0%
Current accounts
Mortgages
Savings accounts
Personal loans
Credit Cards
50% 100%
Banking products’ propensity for
distribution channels
UK challenger banks’ product offerings
● Currently challengers are offering simple products such as CASA, credit cards
and personal loans
● From the challenger’s perspective, it is interesting to note that the most
profitable retail product is at the same time one the most complicated to
distribute digitally
The product mix from challengers is relatively simple

19. 100%0%
Primary Credit card
Current account
Savings accounts
Personal loans
Mortgage
50%
Personal financial advice
Challenger
banks
Traditional
banks
Others
● As of now the challengers
have only managed to
provide add-on products to
customers
● Given the focus on customer
experience, personalization
and prompt service the
challengers are well
positioned to increase their
share quickly for simpler
banking products
For those with both traditional and challenger bank
accounts, what do they use challenger banks for?
Consolidation reason 3: Challengers still service only a small portion of customers’
financial needs

20. What do customers feel about the product offerings of challenger
banks?
“Student accounts have
more offers in the bank”
“Insurance is a
major reason I
haven’t shifted to
a challenger
bank”
“It’s easy to top up
the card when we
need to transfer
money from home”
“I can use for the app for
managing pocket money of
children”
“Tracking money has
never been so easy”
But even with the simplicity of products, users are delighted with challenger banks

21. 30% OF ALL COSTS of a typical retail bank in
the UK is consumed by its BRANCH network
AN ADDITIONAL 20% is incurred by IT
departments, with a large chunk of it going
towards maintaining LEGACY systems.
Challenger banks are expected to have an
average COST/INCOME OF ~26% (vs that of
traditional banks of ~60%)
0%
50%
100%
25%
75%
Distribution costs
IT costs
Building costs
Operations costs
Other costs
● With lower operating costs challenger banks have the opportunity to
offer better rates on simpler products.
● Challengers partnership can alleviate the short to mid-term pressure
on the bottom-line of banks through operational and technology-
related cost optimizations
Cost distribution of a traditional retail bank
Consolidation reason 4: Challenger banks, so far, are keeping their costs down
Oliver Wyman Data

22. How do you like to access your bank
account(s)?
Website
APP
Phone
Branch
29.6%
100%
14.8%
11.1%
Social Media
Chatbots
60%
82%
are willing to pay their friends over social
media
don't care if they are talking to a chatbot as long
as they get the best customer service possible
● Customers want the convenience of multiple channels -- the ability to
bank anytime, anywhere, in any way, but satisfaction matters most
● It is critical for banks to consider new digital channels as part of an
integrated strategy and evolve from first to second generation digital
banking
Preference for emerging digital channels
Consolidation reason 5: Challengers are using digital channels effectively

23. Account
services
Personal loans
Wealth
advisory
Insurance Credit cards Mortgage
ENGAGEMENT
INTERFACE
Customer onboarding platform
Products & Services
IT & Operational infrastructure
UNIVERSAL BANKING
Experience
partnership
DIY Challenger banks
Starling Monzo
3rd party IT infrastructure
Atom Tandem
DISAGGREGATION
Product
partnership
Operational
partnership
Challengers
Traditional
COLLABORATION
One way or another, they need banks as partners

24. TD Bank + Westpac+ Moven
Moven is embedding its personal finance management capabilities into
the web and mobile banking platforms of TD Bank and Westpac
CBW Bank + Moven
Moven has partnered with CBW Bank for its Moven card that combines
bank opening with Mastercard.
WSFS Bank+ ZenBanx
Rolled out a digital-only account that lets customers park their money in as
many as five currencies, make domestic and international transfers and
handle foreign currency exchange
Lincoln Savings Bank + Social Money + Qapital
Introduced Qapital savings account for millennials to help them build a
savings habit
Radius Bank + Aspiration
Introduced a high-yield digital only checking account that lets customers
choose their own fee structures.
Some early bird partnerships in action

25. The Digital Banking Report - Burnmark Challenger Banking Quadrant (Q2 ‘17)
Crowdsourced

26. Thank you!
@burnmark_
info @ burnmark.com