The United Kingdom European Union membership referendum was inevitable when David Cameron won the 2015 general election, having promised such a vote during his campaign. Coincidentally, 2015 was when branchless challenger banks Monzo and Revolut were founded, with Starling launching a year earlier.
While the direction of travel was established five years ago, the combination of Brexit and now COVID-19 has quickened the drive for older financial institutions to transform their business and operating models, because it’s clear: the future is digital.
Technology is enabling fintechs to enter the banking market, and thrive. Experts predict traditional banks will have to partner with tech organisations to keep pace with developments.
A study of 200 UK and European banking executives by Marqeta – an open-API card issuing and processing platform that MasterCard has recently invested in – found that in the wake of the coronavirus pandemic over three-quarters (78 per cent) of banks have been forced to change their future banking strategy.
Some 72 per cent of those surveyed are planning to grow the number of in-branch digital services, and two-thirds will invest more in digital banking and services. Further, nine in 10 respondents (89 per cent) says the COVID-19 situation has “drastically increased” the speed of change in banking from years to months.
Max Chuard, chief executive of Geneva-based banking software fintech Temenos, says: “Uncertainty is a catalyst for innovation. The 2020s were already set to be the decade for digital banking transformation. But now the coronavirus crisis has accelerated this process. It has made the need for advanced banking technologies – like artificial intelligence, cloud and SaaS – even greater.”
Defining moment for the banking industry
The Temenos CEO points to his organisation’s global survey that shows almost half of the respondents (45 per cent) say their strategic response to the rapidly changing banking landscape is to build a “true digital ecosystem”. He adds: “It’s a defining moment for the banking industry, and those who can harness the potential of digital technology will shape the future.”
Michael Plimsoll, industry head of financial services at computer software giant Adobe, thinks the same. “Banks have to ensure they keep pace with digital-first challenger banks, such as Monzo or Starling, to deliver new experiences that both enhance and complement their bricks-and-mortar branches,” he says. “This has included implementing new technologies within apps and websites that enable customers to perform tasks previously exclusive to the branch, like cashing cheques or remote meetings with advisors.”
This need to evolve banking operations provides an opportunity to streamline typically time-intensive tasks, such as setting up an account or applying for a loan, Plimsoll says. “As an example, TSB implemented digital signature technologies using Adobe Sign to allow customers to carry out important processes from their own home, moving over 15,000 account sign-ups that would normally require a trip to the branch,” he adds.
That convenience will be central to winning customers, believes Aaron Archer, chief executive and founder of London-headquartered challenger bank Finndon. “Digital banks will see a major increase in their market share compared to high street banks, due to their lack of flexibility to adapt to market conditions, and customers will be seeking greater opportunities to save.”
He wouldn’t be surprised if big tech firms, including Apple and Google, begin to “offer banking products to their customer base to create a robust ecosystem”. Archer adds: “You will see an increase of mergers and acquisitions between tech firms and traditional banks looking to stay relevant.”
Sophia La Vesconte, a fintech lawyer at Linklaters, agrees. “With increasing digitalisation, we are likely to see a growth in outsourcing arrangements between the financial sector and technology service providers.” However, she warns: “Regulators across the globe are quite concerned about the sector becoming overly dependent on a small number of – unregulated – technology companies.”
This article was first published in Raconteur’s Future of Banking report in November 2020