Challenger banks not matching up to 'big five' on mobile banking services, says new report

The professional services firm said, though, that "the next wave of challenger banks" is likely to bring greater innovation into digital banking.

"In the last two years, the PRA has granted 11 new banking licenses," KPMG said in a new report on challenger banks. "Many of these are overseas entrants, with a greater focus on treasury or capital market operations. However, amongst this new group – and included in the pipeline of future launches – are the next wave of challenger banks, amongst them OakNorth, Atom, Starling and CivilisedBank."

"There’s a good chance that these banks will bring with them the next wave of innovation – banks built for the digital age with mobile apps that integrate with social media and have features like predictive balances," it said.

KPMG said its own desk research, stemming from interactions with banks, helped it to establish what customers most frequently use banking apps for. The research revealed that the top three things consumers use those apps for are to check their account balance, pay a bill or transfer money and to change their personal details, a KPMG spokesperson told Out-Law.com.

KPMG reviewed the mobile banking apps provided by challenger banks and the 'big five' – HSBC, Barclays, Lloyds, RBS and Santander. It found that existing challenger banks do not offer any greater functionality than the bigger, more established incumbents in the market.

"Our report found that the mobile functionality of the challengers is at best equal to, but often worse than, the ‘big five’," said Warren Mead, head of challenger banking and alternative finance at KPMG. "For those challengers focusing on customer service or cost as a differentiator, this could be a major hurdle for the future."

Consumer research carried out on behalf of Pinsent Masons, the law firm behind Out-Law.com, late last year found that UK consumers are more likely to turn to the likes of PayPal and WePay as an alternative to traditional banking than to challenger banks, technology companies or retailers.

In its report, KPMG said that as banks become "more tech savvy" they could act as disruptors in tech markets as opposed to being at threat of digital disruption from tech giants themselves.

"Much has been made of what might happen if one of the big tech companies – Google or

Alibaba – turned its hand to banking," KPMG said. "But the banks have arguably more meaningful customer data than these firms. And in the long run, who will customers want to trust with their precious data? So, could the next wave of banks actually take on the tech giants? Could the data on your credit card improve the way you shop? Could your bank offer you a more meaningful web search facility having learned your likes and dislikes from your spending patterns? Perhaps a little far-fetched for now, but as banks – like those mentioned – become more tech savvy, the lines are starting to blur."