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
Anna to launch business current account for creative UK SMEs
Hybrid digital assistant Anna has announced plans to launch a UK business current account aimed exclusively at supporting SMEs in the creative industries...
Masthaven reaches £500m in assets
Masthaven has announced that it has generated £500m in assets driven by the growth in its diversified lending across short-term and long-term property finance...
Aldermore refreshes proposition for residential and BTL mortgages
Aldermore has updated its proposition for residential and buy-to-let mortgages...
Paragon provides £20m facility to Duologi
Paragon has agreed a £20m facility with Duologi to support the latter’s plans to grow its portfolio to £1bn in five years...
OakNorth adds former PRA director to advisory board
OakNorth has appointed Martin Stewart as an independent adviser on its advisory board...
HM Treasury to discuss diversity at FP Show
Representatives from HM Treasury’s Women in Finance Charter team will take part in a panel discussion on the role of diversity targets at the Finance Professional Show...
Aldermore agrees over £200m of new invoice finance facilities
Aldermore has announced that it has delivered over £200m of new invoice finance facilities to UK SMEs in the last 12 months...
CYBG completes acquisition of Virgin Money
CYBG has completed its acquisition of Virgin Money...
Penta raises €7m in latest investment round
Business bank account Penta has announced that it has raised €7m for its Series A investment round...
STB Commercial Finance opens Leeds office
Secure Trust Bank (STB) Commercial Finance has opened a new office in Leeds as it continues its national expansion...
Starling expands payment services and banking-as-a-service offer
Starling Bank is expanding its banking-as-a-service and payment services offer to enable other companies to offer retail banking and make payments...