As someone who used to work in product development, and then customer acquisition, within the savings + everyday account area at an Australian “high street bank” I might be able to provide some interesting insights.
The first insight is that it’s exceptionally difficult to get customers to switch their everyday account. Customers simply can’t be bothered with the hassle. Digital banks will struggle to overcome this customer inertia. Lower fees are not enough - otherwise everyone would have already switched to the market leader on fees.
The next insight is that having the “everyday” banking relationship is incredibly important for getting other business (credit cards and loans). Customers tend to keep things simple, with only a few suppliers. Customers almost always go to their current bank first when looking for a new product - that first bite at a new product is a massive opportunity.
Regarding differentiation: It’s possible to differentiate with product features. Designing something that specifically meets the needs of a customer segment the bank wants to target. The key point here is that banks will identify customer segments and will design products and marketing to address the needs of that segment. A segment of customers can be as big (old people) or as small (self funded retirees living in XYZ) as you want, but the product, and marketing, needs to be designed to address the specific needs of that segment.
There are many lessons to be learnt from the big banks. Digital banks will need to be very clear about who they are trying to target, and have a very good understanding of what the customer needs are. I suspect that Digital banks will quickly learn that there is no “one size fits all” product solution.