I survived the debate at CSFI in London yesterday!
When Metro Bank PLC was granted its banking license by the UK Financial Services Authority in March, 2010, it was the first high-street bank to be granted such a license in over 150 years. Since then, a number of new challenger banks such as Shawbrook and Aldermore, have entered the market with a focus on underserved segments such as buy-to-let or commercial lending. Now, with the announcement that a number of “pure digital” banks, such as Atom, Fidor and Mondo expect banking licenses this year, we’re seeing a new type of challenger in the arena.
The question posed by Hakim Mendjeli, our chair at the Centre for the Study of Financial Innovation (CSFI) event yesterday, was whether these challengers could actually disrupt the incumbent big 4, who have invested heavily in their digital propositions, all offering mobile banking and rich digital channels for retail customers.
In the challenger corner, we had Tom Blomfield, CEO of Mondo, who spoke passionately about his vision to “build a bank for people who live their lives on their smartphones.” In the incumbent corner, we had Anjit Chajjer representing Royal Bank of Scotland’s digital innovation function. I found myself in the middle, challenging the view that big banks don’t innovate – they do: my team launched the UK’s first iPhone mobile banking App at Natwest and I was head of the Barclays Wealth digital team when the Barclays group launched PingIt the UK’s first P2P mobile payment system. But I also had to acknowledge that incumbents are handicapped by costly branch networks and legacy core banking infrastructures that make it harder to cut out costs and innovate rapidly. Many in the audience questioned the idea of a pure digital bank in general. “Who will customers speak to when they have a problem?” they protested. Fidor bank in Germany was noted as an example of a relatively successful pure digital bank, with 300,000 customers serviced by just 32 employees! Fidor bank famously raised its Savings rate by 0.1% for every 2000 likes they got on Facebook. Mondo Bank aspires to go beyond this – by using social, mobile geo-positioning, and transactional data to help customers – for instance – automatically apply for refunds when train journeys are delayed, and to exploit the transactional data to generate fees from introductions to third party service providers who access their platform via open APIs.
Whilst pure digital might work for millennials, it will appeal less to the baby boomers and Gen X. So, for some time yet the incumbents will need their call centers and physical presence to address the needs of the older demographic. Many in that segment are currently the wealthier individuals. “So what about Wealth Management?” asked the audience. For those High Net Worth Individuals comfortable with technology, yes we are already seeing the likes of Betterment, Wealth Front – USA, Nutmeg – UK, winning business by offering “robo-advice” for a fraction of the fees of traditional wealth managers.
Finally, we were asked if Tom from Mondo Bank would end up on a yacht in the Bahamas in five years time. The consensus was that probably yes, given the amount of Venture capital that is being poured into Fintech start ups at the moment. But the jury was out whether the investors would by then have made a profit, or still be investing in the next funding round.
Still standing in the middle of the ring, my own conclusion was that cognitive technologies such as Wipro Holmes and robotic automation could enable both challengers and incumbents to operate more cost effectively with ever more complex processes being digitalized. The outcome will depend on who’s savvier at adopting, implementing and developing new revenue streams with these technologies.