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Is the digital-only banking sector set for consolidation?

Jordan Williams | 17:00 Wednesday 14th March 2018

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: “Given the exponential growth of the industry these past five years, it is inevitable there will be some form of consolidation in the future.

“This could take the form of established banks cherry-picking the technologies and services they like or complementary businesses – which sit on newly formed Open Banking marketplaces – establishing more permanent alliances.'

Marcus Exall, VP of partnerships at Monese, added: “The 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.

“There 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.

“Some banks will doubtless buy smaller challengers, but we shouldn't see this as proof of a pitched battle raging within the sector.

“With 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.

“But 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.

“You 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: “We believe that rather than having to survive, digital-only banks are thriving by being tech-only platforms.

“We 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.

“Fairly 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.

“We 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.

“Just look at the big banks – they're rolling back the number of physical branches in operation year-on-year.

“As 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.

“We're definitely going to see more collaboration between tech outfits and bigger banks.

“Whether this extends to acquisitions of digital challengers remains to be seen.

“Ultimately, 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.

“The customer journey should be simple and interactive enough to ensure customers that need a more human touch will feel satisfied,' he added.

“AI and consumer psychology can both play a crucial role here.

“The pricing model – on the other hand – will allow digital banks to charge fairly for the value they deliver and will ensure a constant growth path in profit to keep innovating.'

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