Since 2005, the global
financial service system has seen a changing landscape-the altered composition:
a large proportion of the banking industry is now made up of players that did
not exist a decade ago, especially in places like the UK. In Accenture’s
2017 report Start shifting: rapid evolution required, a survey shows
that 63% of the British market was occupied by “new
players”, a trend also seen in Canada (47%), Australia
(38%) and the USA (19%). Benefiting from the wrecked reputation of high-street
banks and the regulator’s favored treatment, neo banks
have flourished in Britain. Now 9% of British adults and 15% of 18-to
23-year-olds now have a neo-bank account, according to a survey conducted by
finder.com. A.T. Kearney also estimated in its European Retail Banking Radar
2019 that by 2023, Europe’s neo banks could have up
to 85 million customers—about 20 percent of the
population over the age of 14.
On the opposite side of those
brilliant new players, traditional banks are suffering from transformation.
The numbers of bank branches per million people are decreasing in almost all
European countries, and particularly dramatically in Spain.
Anticipate the bankruptcy of the traditional banking industry? Seems to be early.
They are also learning from
their challengers and a large economy scale gives them more opportunities than fintech startups. Banking and payment revenues in Europe have been growing
in both traditional and challenger banks since 2005, even though more slowly in
the former. Consumers are still inclined to use a digital bank account for
discretionary spending, with their salaries going into a high-street
bank.
However, the executives of
those incumbent players all have a clear picture in mind that the digital trend
is inevitable now. Those new-born digital platforms are striving to be a
marketplace, not just for financial products but for other services, too. Monzo,
a British neobank, allows customers to put money into interest-bearing pots
held by a separate institution working on offering the best deals on utility
bills, and mortgages from across the market. Some allow customers to obtain
better deals on banking, credit cards and mortgage product like shortening the
process for being accepted for a home loan, which offers their customers a
better sense of financial ownership.
In reality, a handful of banks
have already made efforts to move beyond optimization and use digital to
develop new sources of growth. Norway’s DNB, for
example, has closed approximately 75 percent of its branches since 2010 to
focus on expanding digital channels. Some made strategic acquisitions and
investment of neo-bank startups, which can perfectly make up for their
weakness-digital capability. BBVA has launched an independent venture capital
firm to invest in fintech startups. BNP has acquired Compte Nickel and Groupe
BPCE has acquired Fidor Bank.
Besides, there is an obvious
business barrier that traditional banks have built during hundreds of years,
which is the strong client relationships and deep insights about their client
base. The service will go far beyond payment and deposit area and change with
the clients’ needs, which represents a business
model of advisory banks.