The challenge for Challenger banks (Revolut edition)


4 banks Cum Serv

Graph shows change in cumulative perception over time for Monzo, Revolut, NatWest and Lloyds.


Over the last few weeks the Challenger bank Revolut has had a very challenging time with its market perception, due to a catalogue of errors. We won’t list their problems here, but there is a good summary on Bloomberg.

In a previous blog post on our latest report, “Retail Banking in a FinTech Age” we noted that the Challenger banks like Revolut, Monzo etc. had an advantage in perception over Traditional high street banks. In summary there are two main factors.

Firstly, Traditional banks have some “perception drags”:

  • A wider range of products, and many more customers. However, this gives rise to the problem that there are likely to be more perceived service failures.
  • A long history of past errors that keep on recurring, creating a “drag” on positive perception long after the errors ocurred.

Secondly, Challenger banks have some major advantages:

  • A smaller, more focussed product range using more up to date technology, that they optimise for customer service
  • No history of poor service – no “perception drag” weighing them down.

However, we also noted that Challenger banks have to be better than traditional banks at what they do, as if not they have no competitive advantage, and do not have the reach, range of services, customers or resources. This also includes being perceived as being better – most people these days use some form of recommendation when they choose services, and poor perception means poor recommendation.

We have been arguing this is critical for some time based on our work, now we note even McKinsey has weighed in this February, noting that customer experience (which drives perception) is “beginning to generate meaningful separation in growth between banks”.

That “perception separation” you can see on our graph above translates into real value differences.

Our research covered Monzo, Revolut, NatWest and Lloyds, we noted that Revolut’s perception curve (see graph above) was not much better than the Traditional banks, whereas Monzo ‘s was. The slope of the graph is important, it represents the perceptions of customers using the service day by day (350,000 in our study from October 2018 to January 2019). Unfortunately we turned off the trackers at the end of January, just as Revolut’s woes started, so we can’t graph this period – but you can see this effect on other banks in our report, and we can guarantee this has occurred to Revolut .

However, all is not lost. Our research shows two things Revolut can do to come back fom this:

  • Neutralise the major downspikes – our research shows perception gains from similarly large “upspikes” when a bank is seen to do good things, even if it is fixing problems they have caused (see example here). They need to be seen to be genuinely fixing some of these problems, or acting in the areas of concern.
  • Understand what is going wrong day to day – this is measured by the slope of the curve and is the sum of many peoples’ experiences over time. The graph above shows the overall perception of each bank, but as we show in our report, this is made up of many lower-level component areas – cards, accounts, transfers etc – and each of these then comprises of contributing issues – ease of use, time, costs, errors etc.

The current term for these sequences of day by day events is “customer journeys” but arguably a clearer term is the old customer service notion of “moments of truth” – when the bank either does, or does not, step up to the mark, and this generates a perception. Now what is interesting about these moments is that when they are analysed at a detailed level, three things typically emerge:

  • What the bank thinks is important to the customer is not the same as what the customer thinks is important.
  • Different types of “moments of truth” have different perception weighting, fixing one type of problem can gather far more credut than another.
  • The cost of fixing problems is not absolutely linked to the perception weighting.

In other words, there is an 80/20 of “moments of truth” that can be fixed for low cost/high impact (and a an 80/20 of high cost/low impact), and its very useful to know which is which. Revolut needs to find that out post haste and would be advised to act on it, perception is a fickle thing.

Longer term, it’s clear that a deeper systemic change needs to occur, arguably that is a not an atypical development as it transitions from hard charging start-up to emerging major player.

All of this, and more, is in our latest report, Retail Banking in the Fintech Age. If you would like a copy fill in the form below