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business banking is being rolled out. “We are creating an entirely new way to bank; a system that is based on what the customer needs and wants, rather than being focused on bank balance sheets,” says Mullen.
Elsewhere, Tandem rolled out its mobile banking app to 10,000 early adopters, and Starling received a restricted UK banking licence and announced Faster Payments adoption. It is set to launch to customers early this year and is the brainchild of Anne Boden, a former Chief Operating Officer of Allied Irish Bank (AIB). Monzo also landed a licence with restrictions. It was founded by Tom Blomfield, formerly CTO at Starling, and is currently in the ‘mobilisation’ phase, working with the regulators to get its restrictions lifted and launch a full current account with debit cards, faster payments, direct debits etc.
“When it comes to new entrants, the UK’s certainly taken a number of positive steps in recent years to reduce the barriers to entry and make it easier to obtain a licence. The launch of the New Bank Startup Unit and the relaxation of capital and liquidity requirements, for example, have made the process much simpler and cheaper,” says OakNorth’s Khosla. “This is evidenced by the fact that since Metro Bank was granted a licence in 2010, a number of new players have entered the market (ourselves included), and the Financial Conduct Authority (FCA) is in conversation with approximately 15 more. By comparison, almost 100 new banks entered the US market every year before the financial crisis, but since then, only a handful of licences have been granted. However, while the UK is dominating when it comes to the number of new entrants, I wouldn’t say we’re dominating in terms of competition.”
He points out that the US has a much more diverse banking sector than the UK, with over 7,000 banks across the country, compared to 350 in the UK. In Germany, there are 2,000. In the UK just five banks control 90% of the market, compared to circa 40% in the US and Germany, and SMEs borrow half as much as their counterparts in the US and Germany. “In the US, regulation is also much more proportional when it comes to things like risk-weighted assets, making it easier for new banks to compete.”
Metro Bank’s Hill is correct when he says that a digital- only player has yet to succeed in the US or UK. But this is a project still in its infancy. Moven, OakNorth, Atom et al are playing the long game here. And progress is being made. German digital-only bank, N26 (formerly Number26), now has a presence in 17 countries in the Eurozone as it works towards its goal of serving all Europeans within the next few years. The venture, which has more than 200,000 customers in eight countries, first launched in 2015 in Germany and Austria, then moved into Spain, France, Italy, Greece, Ireland and Slovakia. It is now adding the Benelux countries, the Baltics, Finland, Portugal and Slovenia.
Meanwhile, EQ Bank, a digital-only venture launched a year ago by Canada’s Equitable Bank, now has more than 27,000 customers and over $1 billion in deposits. Whilst Metro Bank, which hit the UK High Street in 2010, currently has 900,000 customer accounts and a branch network of 48 across London and southern England.
None of which will give lazy incumbents sleepless nights, but it will make forward thinking FIs, who have no wish to be reduced to utilities doing only the plumbing, sit up and take notice. “Historically banks have had two great walls standing high against the winter: the cost of building networks. And trust. So is this time different? After all, today the social networks are already global, consumers are already immersed in them and seem to have limited compunction against providing huge amounts of private information,” says Andrew Cornell, Managing Editor, ANZ BlueNotes. “As to the barriers to entry, the great wall is getting lower as digital processes become more advanced and FinTechs in particular lower the cost of making and taking payments. That allows payments to be seamlessly embedded in transactions, whether e-commerce, mobile, or even in chat applications. The more that happens, the more you approach the point National Australia Bank Chief Executive Don Argus was making about banks being “forgotten” in the transaction, just doing the work in the background.”
A change is gonna come. Just don’t place your bets on 2017 as the breakthrough year.
www.ibsintelligence.com © IBS Intelligence 2017
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