Challenger bank CEO says revolution is coming

The UK’s banking industry is stepping into a new era, according to one challenger bank boss, with traditional High Street players starting to take notice of the FinTech revolution.

“I think we are definitely beginning to take steps in to a new era of banking, but this will largely be influenced by technology,” stated Norris Koppel, chief executive and founder of mobile banking app Monese. “This is something we have seen the traditional banks begin to embrace, perhaps this is to keep up with the fast pace being set by digital challenger banks.”

In March, Royal Bank of Scotland was rumoured to be in the early stages of creating a standalone digital bank, with former chief operating officer Mark Bailie reportedly leading the project.

In May, Santander moved a step closer to launching a standalone digital bank, by bringing its Spanish Openbank product to the UK. In the same month, HSBC UK launched Connected Money, the first app from a UK bank that allows customers to see not only their UK current account, but online savings accounts, mortgages, loans and cards held across up to 21 other banks.

Industry stakeholders have predicted this year will see more banking innovation from both challengers and incumbents during the second six months of the Open Banking and PSD2 reforms. Experts also suggested that new launches, partnerships and acquisitions are likely, as it becomes clearer which propositions are popular with consumers.

Dan Jones, head of UK digital capability at management and technology consultancy firm Capco, said that while there have not been any examples of partnerships yet, they make sense in terms of sharing core competencies.

“The ability to handle cash is a good example of a situation where if you’re a customer of one of these new challenger banks, generally speaking you’re not going to carry cash and you’ll pay for most things via your contactless card,” he explained. “But there will be the odd occasion where you need to deposit some cash or a cheque, so how do you do that without the infrastructure of branches – there’s an argument to say there’s a potential partnership out there.

“The existing banks need to decide on what they want to continue to own and what aspects of the value chain they’re willing to depart with if required,” added Jones.

The Confederation of British Industry and PwC’s Financial Services Survey for the first quarter of 2018 stated that competition from new entrants is seen by banks as a key barrier to growth over the next 12 months.

“In fact, competition from new entrants is now at a joint survey record, suggesting that traditional banks are feeling under threat from challenger banks,” the report read, adding: “this is further supported by banks’ focus on organic growth and in particular activities to retain and cross sell to their existing customer base.”

Dave Wallace, who heads up financial services consultancy Mirum Finance, predicted that some of the current crop of challenger banks will be acquired by industry incumbents. “All the existing banks have functional, transactional apps and websites, but it’s all very passive. Digital-only challengers are making things active – take Revolut’s excellent FX interface for instance,” he commented.

In July, Revolut announced that it had signed up one million customers in the UK and is now bringing in between 6,000 and 9,000 new users every day.

“We will no doubt continue to see further acquisitions, but the offering for consumers need to be better than what most digital banks are already offering, this being better deals, improved customer service but most importantly a higher level of security and trust,” stated Koppel.

As for developments under PSD2, he added: “We haven’t seen anything on the market that really excites us yet, but there are many opportunities, and we expect to start seeing interesting products in the second half of 2018.”

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