Home > blog > The role of Quality Engineering (QE) in Challenger and Digital Banks

Challenger and digital banks are disrupting the banking sector, showing us the future of banking, just like other sectors, is technology. Retail banking consumers have adopted these challenger banks on a massive scale leading to several banks getting recognition and gaining grounds worldwide.

Even though many of these traditional banks now have their digital footprint with apps and other web services that make transactions more straightforward, there is still a meteoric rise in the adoption of these challenger and digital banks. A common trait in most of these banks is using quality engineering (QE) processes and approaches to drive their methods to provide better offerings than banking incumbents. These banks accelerate development to delivery of defect-free software with the best of continuous quality engineering.

The growth in challenger and digital banks

There has been a rapid growth in these challenger banks globally, and there are at least 102 in just the UK. From history, there has been a gradual adoption of FinTech in the UK, which was at a high point of 71% in 2019, a 5X increase from 2015.

This explosion of challenger banks took off in 2020, where Mastercard reports that 42% of Europeans manage their finances digitally more often than before the banking, and 62% are thinking of moving from physical to digital platforms permanently. Just in January of 2020, UK company Revolut could boast of over 8 million subscribers worldwide, and Monzo was adding 55,000 new users weekly.

Revolut, Monzo, and Starling are the market leaders of UK challenger banks, with all of them becoming unicorns meaning they have a value of over $1 billion. Of all the equity deals announced in 2020, 77% of the investments went to these three top banks in five funding rounds. Monzo raised £60m, Starling raised £100m, and Revolut raised a whooping £445.4m.

What is shaping their growth?

A lot of factors are propelling these banks and increasing their adoption, some of these are:

Better Banking legislation in the UK

This is peculiar to the UK as new banking regulations have made it easier for startups to obtain a banking license in the UK. A direct result of the banking license application process introduced in 2014 allowed banks to pre-run a private, staff-only test mode before opening their services to new customers. The Prudential Regulation Authority (PRA) developed this process to foster competition in the banking sector, and it has since opened up several opportunities that challenger banks are taking.

New improvements in technology

There have been rapid improvements and developments in technology, especially in the cloud computing space, that have allowed these challenger banks to offer scalable services. AWS and other cloud providers now support scalable IT infrastructure that allows for iterative development. The alternative would have been on-premise physical hardware changes in their data center every time they need to change infrastructure, which would have reduced growth and increased costs.

Impact of COVID-19

The world is just moving on from the heels of a pandemic that confined us to our homes, which meant no opportunities to visit traditional banks. This has led to the shift of customers to digital services for their finances, with more investors putting large sums of money into these businesses. Many of these challenger banks already operate on the digital platform, giving consumers a sense of control of their finances by focusing on customer experience.

Frictionless experience

This is perhaps one of the most significant forces driving the growth of challenger banks as they position themselves to offer an overall experience to traditional banks. These banks use mobile apps, and history has shown people are willing to change their habits when it comes to technology, just like they did with how they buy things or music and book hotel rooms with apps. The same has extended to the banking sector, with these banks offering attractive features such as ease in setting up accounts, attractive rates/fees, different products, etc.

How Quality Engineering (QE) is playing an instrumental role in digital and challenger banks?

Digital and Challenger banks move with digital transformation and are always the first to adopt new technologies to their systems. With their technologies, they set new benchmarks to deliver products to the markets faster and cater to the customer’s needs before they even complain. Traditional quality assurance (QA) methods are no longer impactful for supporting accelerated digital transformation programs. Digital and Challenger banks conduct software application testing in parallel to their development efforts. This fundamental shift in software testing is brought alive through quality engineering principles. Most QE teams work closely with the product developers and operations team to process quicker and consistent releases using test automation methods. This is how QE succeeds over traditional QA plots and plays a central role in helping them provide a consistent and reliable service to their customers.

Everything in the banking sector needs stability and security as mistakes could be very costly and irreparable at any juncture. QE keeps challenger and digital banks a step ahead of all these issues, so their teams do not stagnate at any point in the development cycle. QE mimics how the end-users think and interact with products to deliver an improved customer experience. Embraced with shift-left testing approaches, quality engineering teams bring superior agility and substantial cost advantage for faster time-to-market. Ditching all of the old methods and embracing quality engineering means these banks can deliver quality and speed, which consumers value today.

In today’s world, because there are so many options for consumers to use, mistakes are hardly forgotten and could mean the end of a brand or company. Quality Engineering makes sure the banks detect and correct any defects before they go out into the market and shine a bad light on them. The fast-moving pace of this industry puts challenger and digital banks on their toes to keep innovating and setting new quality engineering standards to beat the odds. Quality engineering is an industry discipline which banks have to consider and induce in its culture to speed up digital transformation.

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How does testing happen in challenger and digital banks?

Cloud implementation has made it possible to build on the DevOps teams and make testing a continuous process throughout the product cycle. Once the testbed is implemented into the cloud, functional and non-functional testing can detect errors early before releasing the product.

Combining this testing method with quality engineering practices will make it possible to release products earlier but still retain their excellent quality. The team can make changes along the way and implement them into the system instead of stopping the process and making significant changes at the end of the product cycle, which are usually more complicated to handle. DevOps and Agile methods going mainstream have made test automation necessary to reach the end objectives faster.

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Wrapping up

Digital and Challenger banks aren’t going anywhere soon, with different companies popping up in the space trying to offer new services to customers. The critical thing for digital-only banks to remember is to make sure the channel through which customers access their services is always available. The competition is heating up in this space, and staying relevant is getting more difficult, especially for smaller startups.

Ensuring they take full advantage of mobile apps and smartphones is the only way to start gaining their footing in this field along with innovation. There are still many challenges consumers face with banking, and if you can provide an outstanding experience while solving these problems, it builds trust and reliability.

Quality engineering will play a significant role in the future of digital and challenger banks, and companies that are willing to embrace technology will be at the front of this change. In the banking industry, there are many quality dimensions to conquer, and it is important to make sure there is nothing hazardous for several clients using the systems daily. This is why you should encourage and foster digital transformation in your business, and the fastest way to do that is through QE.

Article by

Quality Engineering Practice