Branches fall as banking goes digital

Viktoria Holubniuk Blog May 19, 2017 | 0

Since the financial crisis, digital-only banks have placed increasing pressure on the industry’s old guard. But with a wealth of resources in opposition, the industry’s pioneers face an uphill battle.

There is no doubt the global financial crisis changed the economic landscape. But perhaps one of its most lasting effects was the creation of an inherent distrust in retail banking. While never truly beloved, few believed the biggest players in the banking industry were capable of suddenly toppling.

Almost a decade on, and with new regulations in place, a wave of start-up banks have sought to take advantage of the enduring scepticism, winning over customers left frustrated by conventional banking. But what makes these banks different? Well, they are launching without branches, operating entirely in app form.

To the average person, it seems a tempting offer. With many apps now capable of performing the traditional functions of a branch, there is little for a customer to miss out on. If through cutting overheads they can offer better deals than those of the bigger banks, then start-ups may quickly make the transition from novelty to contender.

Decisions made 30 years ago could be making it more difficult for older banks to implement new features.

However, despite the benefit of being built for the modern world, digital-only banks still face a tremendous uphill battle. While free from the burden of legacy systems, they lack the wealth, expertise and momentum that some of the oldest lenders have been amassing for hundreds of years.

Technological tipping point
With an increasing number of digital-only banks hoping to gain the ubiquity of Uber, the global market is already becoming crowded. Many have formed partnerships with ATM networks in a bid to give their customers free access to money while cutting overhead costs.

The UK has become a particular hotspot, with favourable regulations providing a platform for digital banks to flourish. Last year Monzo launched its banking service in beta, issuing 50,000 prepaid debit cards as part of a system trial. In January, Monzo announced it had reached 100,000 users and planned to launch a free current account. Meanwhile, Atom Bank began offering a fixed-saver account, and plans to launch a full suite of financial products – including mortgage services – in the coming years.