Should the High Street Banks be worried?

The internet, coupled with mobile, has been a force to be reckoned with for almost every industry. Travel Agents have been made obsolete by Expedia, SkyScanner, Kayak and a whole host of others. The traditional taxi business has been massively disrupted by Uber and Lyft. Retail is now a very different beast thanks to the likes of Amazon. Newspapers, TV, Fast Food, Music, Hotels, the list could go on and on. There are however a few industries that are yet to really feel mobile internet's effects and one of these is banking (automotive is another but that post is coming soon). For as long as I can remember there's been one constant on the British High Street - the 'Big Four'. The 'Big Four' is a term given to the four biggest banks in the UK, these are Barclays, HSBC, Lloyds, RBS, and between them these banks own around 75% of the market [1]. This general lack of competition is bad for consumers as there's little incentive for any of these incumbents to change or do anything particularly different. In fact, if you look through their offerings not one of them stands out as giving anything above the rest.

Thankfully this might be about to change. There's a big, and quickly growing appetite by young and innovative start-ups to disrupt the old and traditional banking industry. These start-ups under the umbrella term of 'Fintech' are being built from the ground up with large investment from Venture Capitalists. They have none of the baggage that the incumbents have such as large overheads and legacy systems.

This new breed of financial business understands the frustrations and annoyances that a generation who have grown up with technology at their fingertips have. Companies such as Monese, Mondo and Atom are building banks made for the smartphone. They don't have branches, they don't even have website banking, everything is done from your smartphone. The sign-up process is made so simple, you sign-up on your mobile and scan your ID for verification which means you don't have to go into a branch to set-up your account as you would now with the legacy banks. Transfers abroad? No problem, all done from your phone and with zero fees. Going on holiday? No need to get foreign currency, just use your card as you normally would and pay no fees for foreign transactions.

It is this ease of use and transparency that the smartphone generation really understands and wants from everything they use, and why shouldn't they?

Unfortunately though this isn't something the high street bank seems to understand, and those that do can't do anything about it due to their legacy systems and costs and risks associated with building new ones at their scale [2].

"Replacing that tech is just so risky that no one else is going to try to do it. It is a multi, multi billion pound project that is going to take five to ten years, and even then risk failure." - Tom Blomfield, Monese CEO.

I recently switched to a bank that is supposedly 'different from the rest'. Except it isn't really. The app is horrible to use - it's design is terrible and if I want to do anything more than view my balance or transfer money to an existing payee I have to login to their website which takes about a million hours to get through the security (seriously, it's ridiculous). To set-up Apple Pay I had to phone them, yes actually speak to a human being who asked for my every intimate detail just to complete an action that should be so simple.

As I mentioned earlier, it is these annoyances that the start-ups understand and can use technology to do something about.

It's not just the high street bank that's being disrupted either. A whole range of financial services are being switched to mobile. Take Curve for example. Curve is a service that puts all of your cards in to one and guess what, it's all controlled from your mobile. Just scan all of your cards including Visa, MasterCard and American Express and set one as your default. Then just use your Curve card (which is a MasterCard) anywhere. If you want to use a different card just select it in the app. You can even use your American Express in places that don't accept it, and importantly get the same rewards and protections. It even lets you get cash from your credit card without paying fees.

Investments and stock market trading are another financial services area being disrupted. Take a look at Nutmeg or Robinhood who are offering free or very low rate investment and trading platforms all built around simple and easy to use mobile apps.

So, back to the exam question, should the high street banks be worried? Absolutely.


What do you think of the current banking industry, can it change and keep-up? Leave your comments below.

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