Our London banker techno entrepreneur, Howard Tolman, is on holiday today so I am covering for him with a story he suggested.
Our 2017 post looked at the chances of Challenger Banks breaking the massive bank concentration in the UK. The UK has one of the most concentrated/ consolidated banking markets in the world with the top 5 banks (Lloyds, Barclays, RBS, HSBC, Santander) accounting for 85% market share. By contrast, the big banks only account for about 44% in America and 25% in Germany.
The question is, who can challenge this level of concentration & consolidation:
– digital only startup banks funded by VC like Revolut, Starling and Monzo? Many high profile/well funded digital only startup banks have failed and the best have “nosebleed” valuations. Some digital only banks funded by VC like Revolut are going global, so this market battle is getting interesting.
– digital only banks created by a big foreign bank such JP Morgan, an investment bank with enormously deep pockets? Their UK digital bank is branded Chase, the same name as its US retail bank, which serves half of American households.
-digital only banking services offered by tech giants, such as Alibaba and Tencent in China, and Amazon, Google and Apple in the US?
It will be interesting to see if JP Morgan’s deep pockets will win. In this game, size matters but so does agility & focus. It is easy for a big bank to launch a digital bank with a separate brand and many have done so, but few have got to scale.
One thing is for sure, the economics of high street branch banking are awful. The winner will be a digital bank; the only question is whether that digital bank will be funded by VC or a bank or a tech firm.
The key is an old fashioned idea – great customer service – with a modern twist – 24/7. WordPress manage to do this for a low cost digital service, so it is possible. The first digital bank to do this well may become a big market winner.
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