Challenger banks will sink or swim
A range of new banks launched this year with a focus on delivering services through mobile devices. This includes Atom, Starling and Monzo.
However, while banking licences have been granted for these digital challengers, for the most part their entrances into the market have been tentative thus far. For example, Monzo has launched prepaid card services linked to a mobile app, but is awaiting restrictions to be lifted on its banking licence before it can support current accounts. It is a similar situation for its competitors too, but this is likely to change next year and we will see which new lenders are successful in attracting customers.
The propositions offered by these banking upstarts are certainly intriguing, with neither the baggage of legacy technology to hold them back nor the negative reputations that have hurt some of the big names in the wake of the financial crash. But questions remain. Can they overcome the well-documented inertia among customers when it comes to switching banks? Are customers willing to trust a startup bank with their money over well established companies? Should the incumbents really be worried about an 'Uber-effect' in the retail banking sector, given that, unlike the retail sector for example, they have had lots of time to prepare for the entrance of new digital-focused competitors?
It is likely that the answers to some of these questions will become clearer next year. In addition, it will also be interesting to see whether any of the Big Four UK banks will move to acquire digital challenger banks, just as French banking giant Groupe BCPE acquired Fidor earlier this year.
For the rest of the sector, the emergence of these new banks will place ever more emphasis on providing modern and reliable digital services to customers, at the same time as managing costs.
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