Evolve Or Dissolve
The banks rising to the challenge of FinTechs and those falling behind.
Digital Innovation is lighting the way for the future of banking. The rise of FinTech companies are advancing customer expectations for financial services, accelerating the need for traditional banks to develop their digital platforms. Although some are rising to the challenge, others are lagging and decreasing in technological relevance.
FinTech challenger banks, such as Monzo and Revolut, constructed a banking experience orientated around a mobile application. These apps thrive on spending-habit insights, curating a personalised user experience and offering greater control over spending. Their low-cost, digital-only service approach to banking has enabled them to offer lower charges to their customers and invest higher amounts of revenue into digital innovation. Monzo and Revolut were ranked 2nd and 3rd in the annual Fintech 50 list. Although both were founded in 2015, Revolut now has 7 million customers, whereas Monzo has 3 million. This rate of growth has caused Accenture to predict that both branchless bank services will treble their customers in the next 12 months.
“The rise of FinTech banks have highlighted changing customer needs, accelerating the innovation of financial services.”
These figures do not immediately threaten the likes of Lloyds Banking Group, who currently have over 30 million customers or HSBC Holdings plc, who boasts 38 million. However, the rise of FinTech banks have highlighted changing customer needs, accelerating the innovation of financial services. Traditional banks are responding to FinTechs digital approach to banking. The 24/7 financial assistant offers users personal insights into their spending and tools for budgeting.
CEO of Royal Bank of Scotland, which owns NatWest, Ross McEwan has stated that RBS has six units dedicated to digital development. One unit known as Bó is specifically focused on competing with Monzo’s user experience. HSBC are also focused on innovating user experience, investing around $4.1 billion for digital transformation in 2018. They recently launched Innovation Labs in Toronto and London which are dedication to developing data, cloud and AI solutions. They utilise blockchain security, digital wallets and virtual accounts in their transaction operations, resulting in HSBC being acknowledged as ‘Best Global Transaction Bank’ at The Banker magazines annual Transaction Awards in 2019. They continue to push for digital growth, pledging to invest $17 bn in technology based services by 2020. NatWest began trials of Mimo in April 2019, a finance monitoring app that is undoubtedly influenced by the functions of Monzo.
“NatWest began trials of Mimo in April 2019, a finance monitoring app that is undoubtedly influenced by the functions of Monzo”
In contrast, Lloyds Banking Group invested $3.1 billion in technology developments in 2018 but have not announced any further investments since. Although they succeeded in automating simple transactions over their multi-channel platforms, such as enabling customers to freeze accounts via mobile banking, they have not taken any great strides in developing the digital user experience. This failure to lead on digital transformation is reflected in their financial performance. Lloyds Banking Group and HSBC Holdings plc have a similar number of customers, yet whilst HSBC grew their revenue in 2018 by 4.5 % to $53.8 bn, Lloyds revenue declined by 34.05% to £22.09 bn.
Barclays has also shown a lack of progress in digital development. Despite launching Rise Network in 2017, a FinTech accelerator program designed to help plug Barclays into the FinTech ecosystem, they have not yet utilised these partnerships. Kristy Rutters, Chief Innovation Officer, unveiled a vague digital strategy to The Banker earlier this year. Although she highlighted the opportunity of Open Banking for expanding their user service model, she also stated that Barclays did not yet have a strategy for developing a business model that uses the data to tailor services to the customers. Though Kirsty recognises herself that a mass of data insight does not The digital disruption and impact of FinTech jolted the banking sector awake, forcing them to evolve to stay relevant. Those who will survive in a new digital financial eco system are those who have invested highly in technology development and innovated their online user experience. Whilst HSBC and RBS Banking Group are transforming their digital customer services to reach FinTech’s online capabilities, Lloyds Banking Group and Barclays lack of strategic response is causing them to fall behind. add value if not used strategically, their strategic intent is being implemented too slowly to keep up with the fast-paced momentum of the changing banking landscape. This stunted growth is reflected in their failure to grow their revenue in 2018, which remained at £21.1bn.
“Those who will survive in a new digital financial eco system are those who have invested highly in technology development and innovated their online user experience.”
The digital disruption and impact of FinTech jolted the banking sector awake, forcing them to evolve to stay relevant. Those who will survive in a new digital financial eco system are those who have invested highly in technology development and innovated their online user experience. Whilst HSBC and RBS Banking Group are transforming their digital customer services to reach FinTech’s online capabilities, Lloyds Banking Group and Barclays lack of strategic response is causing them to fall behind.