Experts predict global digital banking ‘Goliath’

The financial services industry should brace for the emergence of a globally dominant digital challenger bank in the coming decade, experts have suggested.

Speaking at a panel event at London’s PayExpo, Matt Ford, head of product at challenger bank Tandem suggested that the rapid adoption of digital and mobile banking, as well as the scalability of platforms across borders would usher in an era of digital ‘goliaths’ in the financial services sector which could prove just as disruptive as social media giant Facebook.

“I think we’ll see something huge”, Ford said. “I think what you will see in the next two, three four years is the emergence of a new type of bank. HSBC is the global bank, it is in multiple markets but it is not in every single market. The logistics, the complex regulatory environment mean you cannot have a bank in every single market if you’re running a traditional bank.”

He went on: “In the next five years you will see two, three, five, ten global digital players on the scale that nobody could have predicted of Facebook 10, 15 years ago and now all of a sudden you’ve got Facebook, Apple, Amazon, these guys who are goliaths, and I really strongly believe that the flip to digital, the business models that are coming in means that all of a sudden you’ll start to get an emergence of some goliaths coming through.”

However, challenging the notion that the rise of digital banking will spell the death of High Street banking operations, Stephen Lemon, co-founder of payments infrastructure provider Currency Cloud, said the established incumbent lenders “aren’t going anywhere.”

He added that he had recently spoken to an employee of Lloyds, the UK’s largest consumer bank, who was unconvinced that a generation of up and coming FinTechs such as Starling, Monzo and Atom Bank were poised to “eat the banks’ lunch.”

“She was just really confused and said ‘they’ve got 500,000 customers, we’ve got 33 million’. That status quo isn’t going to change in a hurry,” he said.

He added that the process of creating digital banking platforms was extremely difficult, not only due to the technological infrastructure involved but regulatory burdens, and said that this is why the incumbent banks such as RBS were building digital standalone banks from scratch.

On the issue of branch closures among established retail banks, the panel noted a drop in the last three decades from 17,832 units in 1989 to 6,292 last year as consumers made the switch to online and app-based banking. Last year alone 1169 branches were shuttered, with RBS announcing the closure of 216 branches in 2018-2019.

However, despite widespread perceptions that branch closures were being led by cost-cutting measures, Ford suggested that the driving force was in fact changing consumer demand.

“Really what we’re doing is adapting to customer needs, this isn’t a cost saving exercise because all of a sudden branches are really expensive, therefore need to get rid of them, this is an evolution of customer needs and this is a segment piece.

He added: “I don’t think bricks and mortar are dead, per se but it’s certainly an increasingly niche proportion of the population.”

Lemon predicted that in future high street lenders will join forces to continue providing face-to-face advice and banking services such as the emergence of mobile banking vans.

“We’ve started to see shared services and banks sharing assets to drive remote communities, and I think we’ll start to see that a lot more prevalent,” he said.

Earlier this week, Royal Bank of Scotland’s head of operations for digital propositions claimed that the bank is “catching up” with digital banking challengers, but has been slowed by having to upgrade legacy systems.

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