Functionality-based differentiation is ultimately unsustainable for new banks, according to Alex Letts, CEO of U Account.
The past few years has seen a number of new banks enter the market, with some looking to challenge the established elite, while others target underserved areas.
But how can they stand out and attract customers from more traditional institutions?
Launching with a niche has been one such tactic to help increase market share.
These niches can range from high-tech online or mobile-only capabilities to championing the human approach with more branches or regional managers.
However, Alex Letts, CEO of U Account, believed that while functionality-based differentiation may be useful for immediate visibility, it was ultimately unsustainable.
“If new entrants don’t have a DNA-based differentiation, then they don’t deserve to succeed, and almost certainly won’t.”
How important is it for new banks to have a niche?
CivilisedBank received its banking licence in May this year and is using a network of local bankers with delegated lending authority to provide bespoke loans, overdrafts and offer deposits to businesses in their local communities.
“Any new bank must offer something different if it is to succeed,” said Philip.
“The banking market in the UK needs real alternatives.
“It is very important that new banks provide excellent service either through a niche product or by serving a niche market.
“That is the only way to succeed long term.”
OakNorth launched in September 2015 and its co-founder Joel Perlman felt it was very important to have a niche, not just to stand out, but also to survive.
“There are now tens of new banks in the UK, so without a clear and unique proposition, it will be impossible to compete.
“At OakNorth, we focus on a portion of the market that has been underserved and neglected for decades: bespoke lending to SMEs.
“We’re not trying to replace the clearing banks by offering current accounts, credit cards etc, we just want to do bespoke lending really, really well.”
Jon Hall, managing director of Masthaven, didn’t believe banks should launch with a niche just for the sake of brand attention.
“From my point of view, the banks – or financial services brands – who do choose this route to market do so based on deep customer insight – they have identified a clear customer need which is not being met by existing providers.
“Any brand that decides to fish in a small pool – with a niche customer base – has to be very sure it is deep enough to support an entire business.”
Mike Kirsopp, CEO at Cambridge & Counties, said that while it was important to launch with a clear niche proposition, the quality of the delivery of that proposition was more important.
“The branding, the vocabulary and the tone of voice can all help position a new bank in its unique spot within the market.
“[However], the new entrant needs clarity around what it is there to provide and why that deserves the attention of both business partners and direct customers.
“How it does what it does is as important as what it provides.”
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