Banks have come a long way from the temples of the ancient world, but their basic business practices have not changed.
Although history has altered the fine points of the business model, a bank’s purpose is still to make loans and protect depositors’ money. However, now more than ever before, the shape of the market and those controlling it is the subject of much speculation.
While the internet has changed many aspects of media, retail and communications almost beyond recognition, areas of lending, insurance and investing have been relatively unaffected. Despite some interesting changes in the last six years the competitive landscape is not vastly different to 2008 when we had six big deposit account institutions and a handful of challengers. Some might argue that nothing is really changing.
However, with the banking sector making up such a significant proportion of the British economy – and yet to undergo true radical innovation – there are three key reasons why I believe it may finally be ripe for disruption.
The impact of game-changing technological innovation is inevitable. The details are beyond the scope of this article but new enablers are popping up all over the place. For example, there are already enough crowdfunding platforms to justify an aggregator and there are many more new, fresh solutions set to launch in the coming months. In fact, Andrew Bailey, Chief Executive of the Prudential Regulation Authority goes as far as to suggest that the banks may benefit from ripping up and replacing legacy systems with some of these new platforms.
Coming hand in hand with these advances, is a steady growth in technology adoption. Brits have now downloaded more than 12.4 million banking apps while the number of transactions made using them has nearly doubled in a year, hitting 18.6 million a week in 2013. The rise of online and mobile banking has seen a drop off in branch visits, with RBS reporting a 30% fall in footfall since 2010. Barclays confirmed plans to axe 1700 customer-facing jobs from its branch network in 2014, citing the rise of new customer channels, particularly mobile banking. (Finextra, 15th April) You only have to look at the continuing global proliferation of Uber for an example of how quickly a combination of these two elements alone can disrupt industries at speed. But there is one final piece to the jigsaw.
Barriers to entry are falling. Along with a review of capital requirements the FCA’s Project Innovate has been brought in with the aim of ensuring that positive developments in areas such as mobile banking, online investment or money transfer, are supported by the regulatory environment.
In my mind, the three factors above mean the prospect of building and launching a brand new bank has probably never been more enticing. Serious players with the essential elements such as liquidity, capital, infrastructure, a strong business case and the right backing will now find it much easier to enter, so don’t be surprised to see some serious contenders entering the market in the coming years, which will be great for both customer choice and competition.
Facebook’s application for a banking licence and Google’s slow but steady movements into the world of financial services may just be the start of more to come. PayPal, eBay, Amazon, and Twitter could conceivably move into banking and attract customers. Their systems contain consumer and business data galore and can already handle transactions and money. As if the interest of Silicon Valley giants isn’t enough to convince you, dozens of start-ups are springing up in London and across the globe, claiming to offer faster and more efficient financial products than the major banks. As we become more comfortable conducting our lives online, and less tolerant of poor, legacy baggage-driven service, the time seems right for some genuine challenges to the status quo. Whatever happens in the coming years, one thing is for sure; maintaining market share is going to hinge not only on the provision of competitive products, but also on the provision of slick, multichannel banking interfaces and customer service at levels not previously seen in Britain – so either way, a revolution is coming!
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