An industry expert expects to see some form of consolidation in the digital-only banking sector in the future .
A recent report by RFi Group found that interest in digital-only banks had started to wane.
The research also highlighted that the global appetite for digital-only providers had fallen from 74% in H1 last year to 63% in H2 2017.
'It is inevitable there will be some form of consolidation in the future'
John Gunn, executive chairman at SynerGIS Capital, said: â€œGiven the exponential growth of the industry these past five years, it is inevitable there will be some form of consolidation in the future.
â€œThis could take the form of established banks cherry-picking the technologies and services they like or complementary businesses â€“ which sit on newly formed Open Banking marketplaces â€“ establishing more permanent alliances.'
Marcus Exall, VP of partnerships at Monese, added: â€œThe rate of change that is possible by using the latest technology means that [the] pace will continue to accelerate and the products and services that can be developed to improve the experience for customers as a result of this will mean that the gulf in satisfaction between the new challengers and the incumbents is only likely to widen.
â€œThere is likely to be consolidation as the sector grows, but this is not something that preoccupies us at the moment."
Clint Wilson, founder and CEO of nimbl, also expected to see acquisitions.
â€œSome banks will doubtless buy smaller challengers, but we shouldn't see this as proof of a pitched battle raging within the sector.
â€œWith their healthy capital reserves and big balance sheets, banks may well consider acquisition to be a faster, more efficient way to enhance their offer and appeal to the new generation of consumers and business customers who crave convenience and innovation.
â€œBut don't expect big banks to be gobbling up all the minnows: smaller challengers will likely pursue partnership with big banks as an opportunity to access the capital or more sophisticated financial products required to scale up.
â€œYou could say we can expect to see as much collaboration and healthy competition as we will open conflict.'
Can challengers combat the threat of digital platforms from the big five?
Mobile-banking platform Revolut didn't agree with the findings of the report.
Nikolay Storonsky, CEO and founder at Revolut, said: â€œWe believe that rather than having to survive, digital-only banks are thriving by being tech-only platforms.
â€œWe believe that traditional banks are failing by not offering effective technology platforms, they aren't integrating customer data properly for better suggestions and they aren't serving customers with enough machine-learning intelligence embedded in their processes.
â€œFairly soon we'll start to see digital-only banks with lower fees forcing some other banks to close their branches.'
Nikolay added that Revolut had gained over 1.5 million customers with a zero marketing spend.
â€œWe expect big tech companies to be more agile than traditional banks, to start investing in promising technology platforms and start-ups, with an increasing number of key partnerships, mergers and acquisitions.'
'We're definitely going to see more collaboration between tech outfits and bigger banks'
Ricky Knox, CEO at Tandem Bank, believed that banks could certainly prosper as tech-only platforms.
â€œJust look at the big banks â€“ they're rolling back the number of physical branches in operation year-on-year.
â€œAs long as you make it easier for customers to manage their money and have great products, there's a lot to play for.'
Ricky believed that although lots of people don't pay much attention to developments in the financial space, trust and awareness would come in time.
â€œWe're definitely going to see more collaboration between tech outfits and bigger banks.
â€œWhether this extends to acquisitions of digital challengers remains to be seen.
â€œUltimately, as the market opens up, banks of all sizes are going to need to specialise.'
Gianluca Corradi, head of UK banking at Simon-Kucher & Partners, believed the customer journey and the pricing model were ultimately the key drivers to ensuring digital banks' success in the future.
â€œThe customer journey should be simple and interactive enough to ensure customers that need a more human touch will feel satisfied,' he added.
â€œAI and consumer psychology can both play a crucial role here.
â€œThe pricing model â€“ on the other hand â€“ will allow digital banks to charge fairly for the value they deliver and will ensure a constant growth path in profit to keep innovating.'
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Customers pay nearly £500 more than the advertised personal loan rate
Customers paying for an £8,000 personal loan over four years have paid on average £453 (2.61%) more than the advertised rate, according to the latest research...
Leek United appoints new Ashbourne branch manager
Leek United has appointed Abigail Bowden (pictured above) as the new manager of its Ashbourne branch in Derbyshire...
UTB enters specialist remortgage market
United Trust Bank (UTB) has launched a new residential remortgage product range...
FCA fines Bank of Scotland £45.5m for failing to report fraud suspicions at HBOS Reading
Bank of Scotland (BOS) has been fined £45.5m by the FCA for failing to disclose information about its suspicions of fraud...
N26 introduces MoneyBeam to UK users
N26 has introduced MoneyBeam to its UK users which will enable them to instantly send money to other users of the mobile bank...
NatWest names new CEO for Mettle
NatWest has named Marieke Flament (pictured above) as the CEO of its SME digital banking subsidiary Mettle...
CYBG to rebrand as Virgin Money and launch a new business current account
CYBG has revealed that it will rebrand to Virgin Money over the next two years with new Virgin Money-branded products...
New bank Chetwood Financial reveals long-term ambitions
Chetwood Financial is aiming to use technology to offer better deals to customers, having secured a banking licence late last year...
The opportunity for accountants to help businesses
In light of bank and building society branch closures, a new report published by Oxford Economics in partnership with Funding Circle has revealed that in the UK — despite the vast economic output generated by SMEs — small business lending accounts for only 2% of banks’ balance sheets...
Paragon Bank’s structured lending team passes £100m milestone
Paragon Bank’s structured lending team has passed its £100m milestone 18 months after launching...
Hanley Economic expands intermediary support team
Hanley Economic Building Society has appointed Kate McKeon (pictured above) as an intermediary sales assistant...