Have big banks lost the plot?

I’ve said for some years that digital challenger banks will not break the stranglehold of the big banks on the retail banking space. Am I wrong? According to a new report by the UK regulator the Financial Conduct Authority (FSA), things are changing fast.

What I find intriguing here is the nuance.

What?

The nuance.

The nuance?

Yes, the nuance. Let me explain …

People are not leaving big banks. They’re just relegating big banks to big bank functions. People are using other banks for other functions. Think about your jam jars and pots analogy: people are opening deposit accounts in the UK with multiple banks for multiple functions. It is fragmenting banking, but creating more choice and opportunity.

So, some people are using Monzo for everyday living, Starling for their small business and Barclays for their boring other stuff like paying utility bills, mortgages, foreign exchange and so on.

I’ve seen this trend developing for a while and when I saw that the average UK citizen now has 1.9 deposit accounts, that’s the explanation. They’re delegating accounts to functions, not closing accounts.

The issue for the Monzo’s, Starling’s and Barclays of this world is what is their function and how do they keep it? If Starling offers a better way to expand your small business account into everyday living and boring stuff, does Monzo and Barclays become irrelevant? If Monzo offers a great small business account, do you close your Starling account? And Barclays? Oh dear … as a large old bank, I’ve no idea what Barclays can do.

One of my regular interactors on twitter, AKohli,, posted this for example (in reply to my tweet):

Why the hell would Barclays post an in-branch picture of service metrics that makes clear you could much better service from Monzo, Starling and other competitors, duh? Ah, it is a "regulatory requirement". Ah well, I'd hide this round the back somewhere then, bearing in mind there's only 17 banks in the survey.

Now, I use old incumbent banks and new cool digital banks myself. The issue with the old incumbent bank and switching is nothing to do with the pain of switching. It’s to do with the historical relationship, the credit limits, the ability to leverage analysis of being good (or bad) for the money. The new accounts don’t have that flexibility in the same way, which is why my digital challenger bank gets transactional accounts rather than full account service.

This will change overtime because of data. In fact, Open Banking, Open Data and Big Data. Analytics Insight makes this clear.

The emergence of open banking is bringing the most crucial change by increased public awareness of how companies manage personal information and a need for more tailored solutions from financial institutions. Third-party connections help consumers’ lives become hassle-free. Individuals and organizations may utilize third-party applications to improve their daily lives rather than depending on their bank account’s archaic technology and user experience.

This is reinforced by the comment from Harpreet Oberoi, Vice President of Customer Success at Infostretch:

“You can be confident that the danger and opportunity that Open Banking offers are being taken seriously when an organization like Visa buys Tink, a Swedish API fintech with just 400 workers, for $2.15 billion.”

Truth.

Old banks are seeing challenge from challengers. It doesn’t mean that they’ve lost the plot or lost the market but, if they don’t radically rethink their commitment to digital transformation, they will.