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Friday, May 4, 2018

Opinion > U Account

Banking re-born

Alex Letts, founder and chief unbanking officer at U | 07:27 Wednesday 27th September 2017

Dishoom, London: 8pm There was still a queue of young professionals chatting patiently waiting to get into the bar .

There, they would wait again – perhaps another hour – to get a table. At £50 per head, packed to the rafters on a cold Shoreditch Wednesday, Dishoom has cooked up a spicy financial formula.

I wondered about Rotherham or Preston and how long the queues would be there that night for a £50 per head curry house.

I sort of fancied Monzo to be pinging digital vouchers to the £1,000 iPhones decorating the tables in Dishoom. And good on them too for taking on the Bad Old banks. But I also knew that they wouldn't be spending too much time targeting the shivering two-person queue at the £1-a-portion chippy in Chesterfield.

To be clear, this is not a social critique, but an attempt, however crass, to paint a picture. I don't even think that the chasm that is emerging reflects slack morality; it is simply market economics and serving consumer needs and segments appropriately.

After all, banks are lenders: they operate in the lowest-risk segment that they can sustainably serve at scale, ruling out many below average incomes. But even if they did give you another chance to get yourself financially back on track, more likely than not they just won't have the right solution for you. And that's the point.

There are millions upon millions of people whom the banks cannot serve profitably and reject. By the same token, the bank products are not designed for huge swathes of society looking to get back on the financial horse, wanting to control their spending or just trying to stay afloat, avoiding rolled-up overdraft charges. Maybe both parties would prefer to be shot of each other, but historical choice has forced them to shack up in the basement flat of banking.

No longer. Fintech-enabled, non-lending, non-bank accounts, with new models for separate niches and needs, with low costs and excellent products have now appeared. These 'un-banks' can better serve this segment, finally meeting the entirely different set of requirements of these people. The days of one size fits all (a free account and, usually, access to lots of credit) are over. Specialist lenders – experts in this much more complex segment – will work out what parts of their own businesses to digitise and what not to digitise. They will massively grow their businesses as a result.

It's a choice of model. The lending banks for the financially healthy – great. On the opposite side, non-banks and specialist lenders serving the equally pressing, but differing, needs of the rest. Everyone wins.

It may take a few years to mature into separate sectors, but it seems that the dynamics – both socially and economically – are now unstoppable.

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