How to Differentiate in the Competitive Banking Landscape

Banking has been well and truly disrupted. The original neobanks are coming up on their first decade, gaining profitability for the first time and eating up more and more of the retail, and business, banking market.

In an increasingly crowded market, many incumbent banks will be wondering what they must do to stay competitive and remain in the race. Monzo surpassed 10 million customers in the UK in 2024, having only just surpassed 9 million earlier in the year. Revolut also got to 10 million customers this year. In Brazil, Nubank surpassed 100 million customers, gobbling up market share in the process, with almost 57% of their population now having an account.

And it’s not just increased competition that poses a challenge to the established order. Consumer demand is shaped by the other digital products they use. Although financial services is a far more regulated market and therefore deploying new features is harder, it’s certainly taking heed from Big Tech.

With more firms in the market, there are also increasing cost pressures. The challenge is adding new features that are going to serve genuine needs, whilst not increasing costs significantly.

Technology specialists Hexaware have been tracking these changes, and the dynamism of this market for some time. Through their Digital Banking Features Radar, they have kept us up to date with major changes in the ways banks are doing business.

Their most recent report paints a pretty comprehensive picture of what services and features stand out from the crowd. We spoke to Hexaware’s Head of Global Digital Banking, Peter-Jan Van De Venn, to find out how these banks can make the changes they need to make and look at some of the features that could be differentiators.

What the neo-banks are doing

The activity of disruptors such as Monzo, Starling and Revolut in the UK, Bunq in Europe and Chime in the US, have all changed digital banking, many would say for the better.

Through the addition of quick customer onboarding, seamless payment options, better budgeting tools and more, these neobanks created a product that answered the genuine customer demands that banks were facing, but perhaps didn’t have a big enough incentive to do anything about. Until now.

Van De Venn recognises this. “There’s a lot of pressure on banks for new digital services, because the bar is continuously being raised in consumers’ daily lives, through products from the likes of Apple, Facebook and more. They expect the same experience from their banks.”

There is a genuine business case for it, and it’s working. More and more of the names above are reporting profitability. After a long wait, Revolut now has a banking licence and their valuation is ahead of incumbent rivals NatWest and Lloyds Bank.

That’s not to say they always get it right. There have been hiccups along the way, including a substantial fine for Starling for failings in their financial crime controls. Van De Venn points out that some banks can overdo it. “Some neo-banks out there spend a lot on delivering as many features as they can, but forget about the fact that you need to have a business case too. In the long term, many new banks don’t make profit although we’re now seeing a few of the successful ones moving into profit.”

One thing these neobanks definitely have got right is customer centricity.

“It is all about being customer-centric. We still see incumbents thinking in terms of product but it’s way more important to think about what the customer wants, and the frictions they experience in their daily life. A holistic view of banking is needed.”

“Customers are not going to a bank for a loan as the end goal. They want to buy a car, or a mortgage. That’s a journey that goes beyond a financial transaction. Neobanks understand this customer-centricity way better, which also impacts the technology.”

With customer centricity as the driving force, the technology and features are catching up. Now comes the hunt for a USP. “The imperative is finding ways to differentiate.”

That’s why they launched their report.

What are the must-haves, delighters and differentiators?

According to the most recent Digital Banking Features Radar, Hexaware feels that ‘80% of mobile banking functionalities offered by banks are standardised across the industry. This suggests that the remaining 20% of features are crucial in differentiating your services from those of your competitors.’

“We follow over 80 banks globally to see what features they are shipping to their customers in their mobile apps, which has provided us with great insights.”

Through their research they recorded specific features and added them to a matrix that would help establish which ones were more common than others. Central to the report are three key categories; ‘Must-Haves’, ‘Delighters’ and ‘Differentiators’.

“First we see what they have in common. These are the must-haves, where you can’t really differentiate because everybody has these features.”

Then there’s ‘Delighters’, which go beyond the essentials but are increasingly being adopted by more of the banking sphere and finally ‘Differentiators’, the features which really set an organisation apart. They won’t all pay off or land with their consumer base, but some will. The ones that work usually end up becoming more common.

“We see differentiators becoming delighters, and banks copying each other.” It’s inevitable of course, but disruptors soon become pioneers.

“You can be a differentiating bank now but it doesn’t mean you always will be because successful things are copied.”

Examples of ‘Delighters’ include in-app onboarding and search functions, junior accounts, visual personalisation, changing your PIN in-app, round ups, savings goals, bill splitting, cashback and much more.

Viewing other accounts, budgeting and spending analysis are also other features that are becoming more and more standard in digital banking apps.

Some big ‘Differentiators’ included N26’s ability to view cards in AR, Bunq’s community requested features, and Rabobank’s Datakeeper which helps users control what data they share and when they share it with organisations. There was also Starling’s financial marketplace and Revolut’s learning hub. Chime also has some interesting credit and overdraft features not found elsewhere.

Of course, some differentiators such as Revolut’s accommodation booking, are really just additional non-bank services added to their app – essentially creating a sort of super app.

The major focus of Hexaware’s report is working out what your bank should do next. “It’s really important,” says Van de Venn, “To understand those insights and embed them into your roadmap, to make sure that you spend your budget where you can make an impact.” The allocation of budget and strategy for implementing some of these things should be the major takeaway.

The key considerations for differentiation

There are a few considerations that banks should make when approaching their digital transformation roadmap. Simply bolting on new features without thinking about your customer base could be a costly mistake.

Being customer centric

It’s the key lesson we uncovered above. If you can’t address your own customers’ direct needs, then they may well go elsewhere.

Van de Venn says that banks need to “think about who my customers are, and how we can provide real value.” Coming back to this will always be the starting point.

The power of brand

The importance of brand in banking can also not be overstated. And that’s not necessarily about refreshing but rather finding out how to make use of the brand you have. “Your customers have a certain perception of you, so it’s important to understand who you are, and stay consistent with that. Many neobanks play that game really well. Incumbents have a harder time staying true to who they are as a brand.”

Technology revamp… slowly

Technology is often the barrier to a lot of this transformation. Wrestling legacy technology in an effort to deploy new services and features that come so easily to the challengers, is a conversation we see time and time again.

Van de Venn points out that the first port of call is to look at what is there already or what can be added cheaply. “Third-party software can already support many of the features on your roadmap, out of the box.”

Often technology represents the complexity of the org chart and so many services and products exist in silos, which Van de Venn points out are noticeable in the user experience. Alternatively, “if you build your technology to be consistent across the board; one platform where you have reusable journeys that you can consistently bring in across other channels, this is how you create a consistent customer experience.”

“It is challenging to stay out of spaghetti architecture, but a good architectural strategy with a long-term vision will help banks, of course, to succeed in that sense.”

Emerging technologies such as Gen AI are increasingly being used in digital products and could represent the future of digital banking also. Understandably, incumbents are more hesitant about using this technology but Van de Venn says the approach should involve experimenting in controlled environments, something the banks we speak to are starting to do. Who knows what’s next?