Banks are struggling to stand out in a fiercely competitive market where tight margins leave little room for error. Despite significant investment in AI-driven apps and digital tools, many of these innovations have failed to resonate with customers, often making service feel more impersonal rather than improving it.
A lack of emotional connection exacerbated by COVID has compounded the challenge. Complicating matters is the industry’s long-standing focus on compliance over customer experience, leaving many banks ill-equipped to make CX a true differentiator. In the last few years, the quality of CX in the industry on a global level has declined.
In a sector where products and pricing are often similar, customer experience remains one of the few ways to gain a competitive edge — yet few banks are struggling to get it right.
What’s behind customer loyalty in banking? How can traditional banks outpace — or at least keep pace — with emerging fintech competitors entering the market?
Culture shifts in the industry
Over the past 15 years, the banking industry has undergone significant cultural shifts, largely driven by digitalisation. John Sills, managing partner of The Foundation, a management consultancy, describes this transformation as a move towards commoditisation.
“More of the experience and product has gone online, making it easier to replicate. In the past, you wouldn’t walk into multiple banks in a day, but now, customers can easily compare services with just a few taps on their phone,” he told Customer Experience Magazine.
As a result, banks must now differentiate themselves not just through products but through the overall experience they provide.
The shift to digitalisation fundamentally re-wrote the traditional bank/client relationship. Some would argue it lost its personal, empathic approach. One of the early selling points of online banking was it promised to simplify the customers relationship with the bank. In theory, customers would never have to visit the branch again. For some customers that sounded great, but for high street banks it fundamentally re-wrote the customer experience.
Banks have been constantly trying to recalibrate the balance between digital innovation, compliance and customer experience. While digital innovation plays a central role, banks must balance it with human interaction. “Some of that differentiation will come from digital experiences, but some will still be physical or vocal, whether that’s in a branch or over the phone. Without a unique identity, banks risk blending into the background,” Sills pointed out.
COVID-19 accelerated many of these changes, fast-tracking the shift from cash to card payments, further reducing foot traffic in branches and pushing more services online.
Sills noted, “We were already seeing fewer people in branches and more customers banking online, but the pandemic pushed that trend forward rapidly.”
Banks have adapted by expanding online services, implementing video chats, and streamlining digital support. But the challenge remains in striking the right balance.
“There’s still a large group of people who want to visit branches, and it’s not just older customers. Many younger people, especially when making significant financial decisions, still prefer face-to-face interactions,” he added.
Despite the push towards digital, banks must ensure that customers feel supported, particularly in moments of need. “It’s about being available. That means having someone to talk to when things go wrong or when making big financial decisions — whether that’s in-person or on the phone,” commented Sills.
“Many banks still struggle with this, and challengers like Starling are doing a better job by building digital tools that help customers rather than just replicating traditional banking functions online,” he added.
The competitive landscape has changed over recenty years with the advent of fintech start-ups. Traditional banks still hold an advantage in their breadth of services, but fintechs excel in agility and user experience.
“The difference isn’t just about preference — every customer changes their approach depending on the situation,” said Sills.
“For a quick balance check or payment, an app is ideal. But for major decisions like a mortgage or investment, many still want human reassurance. Successful banks will be those that offer flexible experiences that adapt to individual needs,” he noted .
As leadership shifts within banks, so do strategic priorities. While customer experience has gained traction, Sills warned against assuming it’s a permanent shift.
“Some organisations have always been customer-led, while others focus on CX only when it aligns with their business goals. If profits decline or external pressures increase, there’s always a risk of reverting to short term thinking.”
That said, public scrutiny and social media make it harder for banks to ignore CX. “A poor experience can damage a reputation almost instantly. Banks that prioritise customers will likely thrive, but whether this mindset endures long-term depends on leadership decisions and economic pressures,” predicted Sills.
Fintechs vs. traditional banks: who’s winning the CX battle?
Fintechs like Monzo and Revolut burst onto the scene by offering slick, intuitive digital experiences unburdened by legacy systems. Their success exposed the shortcomings of traditional banks, whose lumbering CX often left customers frustrated. But while fintechs set the CX benchmark high, the gap may not be as wide as it once was.
According to Peter Aitken, senior director and head of customer strategy and insights at Kantar, the days of fintechs holding an outright CX advantage are fading. “Ten years ago, fintechs really put traditional banks to shame,” he said.
“But we’re seeing traditional players catching up.”
Contrary to Forrester’s analysis, Aitken doesn’t believe that general sentiment around customer experience in banking is in decline. He attributes falling customer satisfaction figures to broader economic factors rather than the banks themselves.
So, how can traditional banks effectively differentiate themselves? Aitken believes they need to play to their inherent strengths rather than chase fintechs on digital convenience alone.
In the UK, Barclays and Nationwide, for example, have successfully carved out niche positions in the market. “Nationwide, as a mutual, has leaned into its member-owned structure,” he explained.
“They’ve made this tangible for customers by pledging not to close branches and offering cash rewards to members. These aren’t just marketing messages — they create a real sense of difference,” Aitken added.
While fintechs have excelled at simplifying transactions, traditional banks still hold an edge in areas fintechs struggle to scale: trust, human interaction, and operating capital.
“Customers don’t just want digital efficiency,” said Aitken. “They want access to people, a wide range of products, and the reassurance of a physical presence when needed.”
Fintechs, operating with fewer regulatory constraints than traditional banks, have faced issues with fraud and security breaches. Issues with industry regulators, and stories about unhappy customers have impacted public perception, even if existing fintech customers remain largely unfazed.
“While Revolut’s trust ratings declined in the wider market after fraud concerns, trust among its actual customers didn’t drop,” Aitken noted. “But for those who don’t bank with them, hesitation remains,” he added.
Trust is where traditional banks still dominate. Customers tend to keep their primary accounts, savings, and major financial products, like mortgages, with traditional institutions. “Fintechs simply don’t have the capital reserves to compete at scale,” Aitken explained.
“Nationwide, for instance, has around £200 billion in customer deposits, allowing them to offer competitive lending rates. Compare that to Monzo, which has under £10 billion, and it’s clear why fintechs struggle to enter the mortgage market effectively.”
Despite the fintech boom, traditional banks still hold the keys to deeper, long-lasting customer relationships. Their challenge isn’t just about modernising their tech; it’s about reinforcing trust while adapting to changing expectations.