I keep seeing headlines about Amazon opening a bank, challenger banks pulling the crown off the incumbent banks heads, the end of old banks, the disruption of the system and the end of all traditional financial services. I guess some would say that I fall into this camp and, on occasion, I do write things to shake up my traditional financial friends, but I firmly do NOT believe that they are being destroyed by technology. Challenged, yes, but not destroyed.
In fact, I write more often than not about the most adaptable will survive, and it’s the traditional banks that are not adapting that will end. They will most likely be acquired, maybe even by a challenger bank in a few years, but I don’t predict that many of the big banks will disappear.
Part of the reason I say this is that we’ve been predicting the end of the big banks since I started working in this industry, and the big banks have just got bigger during that time. I’ve seen predictions in the 1990s that Microsoft would open a bank and destroy the incumbents and, in the 2000s, that Google would. Neither have, as many of their biggest customers are banks. Do you really want to bite the hand that feeds?
So now we do have a load of new challengers appearing, particularly in Europe, but have any taken significant market share away from the incumbents? Are the traditional banks losing to the challengers?
I claim not yet. Will they? Well, maybe we have to wait and see or, maybe, we will see any banks that seriously challenge being acquired by those they challenge.
Either way, one thing that has impressed me is the growth of the new banks. Revolut and Monzo are both claiming over a million customers today, whilst Starling and Tandem over 200,000 each. And they are doing some things differently. For example, Monzo and Starling made headlines at the weekend about how they can block someone’s account if they have a gambling addiction. It’s the customers choice to have this, and it means that if they try to make a bet with an online bookmaker or in their shop, they transaction is blocked and a 48-hour cooling off period applied.
What is interesting here is that there are now calls for these features to be available in all banks, but can the big banks respond is the question. It’s a good question too, and one that I keep coming back to. Over the next decade, if the challenger banks keep adding more and more cool features to analyse and leverage data, how will large banks respond if their systems are still batch and dumb?
These are the real battle-lines and I do think banks will be challenged … both those challenging and those being challenged. The challenger banks will be challenged to get customers to switch their main accounts and to become profitable before their capital dries up; and the traditional banks are challenged to keep customers’ main accounts, particularly as their back office systems area creaking and groaning into the twenty-first century.
Interesting times indeed. Meantime, if you’re interested in what’s happening with the challengers, here’s a few articles that are worth a read:
- Gambling: ‘A banking app helped me beat my addiction’
- EFMA and Cap Gemini’s World banking report: Banks challenged by tech alternatives
- Tandem Bank narrows losses as revenue run rate rises to £15m
- Digital bank Monzo reaches a million current account customers
- Revolut records annual loss but revenue grows fivefold
- RBS’ new digital bank to be called Bo