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Are cash payers the future customers of challenger banks?

Being dynamic and agile, particularly in the pursuit of better user experience for customers, is a common trait of digital banks. This is key to their competitive advantage when compared to traditional banking. And while cash consumers seem to represent a rather conservative demographic as it relates to financial services, this group is an increasingly attractive target for digital banks, especially during the global pandemic.

COVID-19 has not only revealed the vulnerability of many of the national health systems worldwide, it has also exposed how economically fragile many groups within society are, and particularly the struggles that result from financial exclusion.

According to the World Bank, in 2017 there were approximately 1.7 billion unbanked people globally. This roughly represents the populations of India and the United States combined, and accounts for 22% of the global population. Even though the number of unbanked people is constantly decreasing, a recent FDIC Survey from 2019 shows that over 7 million US households still do not have access to banking. Of these, almost half (48.9%) claim to not have enough money to meet their balance requirements and 34.2% say that the fees are simply too high.

Why digital banks could provide a lifeline for cash consumers

The cost of traditional banking being too high is an important argument why digital banks should focus more on this broad new customer group. Many offer their basic services for free. This would attract those who cannot afford to keep their money in traditional bank accounts due to the monthly fees.

These free of charge bank accounts are digital, and yet not completely virtual. For account holders that want to make payments with cash, some challenger banks enable customers to withdraw traditional banknotes at ATMs using a bank card.

What is more, this easy access to their preferred payment means many customers are not restricted to the country of their residence, but also abroad. Even though travelling is still not possible due to the pandemic, this will probably pick up again significantly as soon as the crisis is over.

Another important factor is technological accessibility. Challenger banks are using cutting edge technology to make money management as smooth and simple as possible. Most importantly, all services are available and optimised on mobile apps. It has become standard to operate online banking simply with a smartphone. Bearing in mind that over 48% of the global population has a smartphone, all fintech businesses must have developed well-functioning applications in this area to win new customers. Challenger banks belong to this category for sure. According to Mastercard Analysis from 2019, 32% of the globally unbanked population potentially could have a bank account just due to the fact that they already possess a mobile phone.

Gaining market share

For digital banks, competition for their market share exists on two fronts. On the one hand they need to stay competitive challenging traditional bank rivals, and on the other they already face a growing interest in fintech services coming from technology giants such as Google. Given that these tech giants are planning to cooperate with brick-and-mortar merchants to easily reach out to cash-oriented clients, putting cash-payers into the spotlight cannot be neglected.

To gain market share among cash consumers, challenger banks must be credible and trustworthy. In the recent Global Banking Consumer Study released by Accenture in December 2020 those consumers are divided into four groups: pragmatics, traditionalists, pioneers, and sceptics, each of whom brings a different challenge. Lack of trust drives all of them, and this is what challenger banks need to focus on. This is especially true because all listed groups have objections against the digitisation of finance without which none of the challenger banks could exist.

eCash as a smooth transition

Simple eCash solutions such as Paysafecash offer a smooth transition from the traditional “cash-only-attitude” of cash-payers to the fully digitised financial systems of challenger banks. Some banks have already recognised the potential of easy deposits with cash and offer it to their customers without forcing them away from their favourite payment means about which we have already discussed here.

Provided that challenger banks recognise the opportunity of including those groups into their financial ecosystem, they will give another reason to traditional banks to see them as increasingly dangerous rivals. It seems that this is a matter of “how and when” the current crisis turns into an opportunity to win cash-payers as the future customers of challenger banks. But the “when” will probably happen sooner rather than later because competitors have also learned how to act effectively and quickly.