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How a new generation of start-ups will shape banking

Matt Chittock

Matt Chittock on the ambitious start-ups looking to take on the banks

British banking is under attack. And this time it’s not from regulators out to cut the fat cats’ bonuses or consumers still blaming them for the last financial crisis – it’s from a new set of ambitious start-ups.

Atom, Mondo, Starling and Tandem are four new UK-based start-ups looking to do for the banking sector what Amazon did for retail and Uber for cabs. So far only Atom and Mondo have been awarded full banking licences (giving them the legal footing to compete with the likes of Barclays and Lloyds) but the others could be set to follow in their foot-steps later this year.

New opportunities

All the start-ups are trying different approaches. Atom, which was set up by Metro Bank founder Anthony Thompson, looks most like a traditional full-service bank, while Tandem aims for a new level of transparency and promotes the idea of being a ‘good bank’. What unites them is a fresh focus on smartphone technology as a positive way to circumnavigate traditional banks’ cumbersome branch networks and old-fashioned software. Together, they’re questioning the wisdom that banks have to be about appointments, call centres and a ‘computer says no’ attitude.

"We looked around all the sectors that were being disrupted and saw the next frontier being retail banking,” says Ricky Knox from Tandem.

“We feel it’s going to be massively disrupted over the next 10 years. The reason there’s an opportunity for a new digital bank is because there’s a new generation of people growing up who have very different relationships with their institutions. They want mobile banking.”

Fresh markets

As Knox suggests, there’s a massive opportunity for opening up the market. The retail banking ‘Big Four’ comprising Barclays, HSBC, Lloyds and RBS currently claim 77% of the 68 million personal accounts active in the UK, equal to an impressive £6bn. If any of these start-ups capture even a little of that total market then they could be onto a winner.

There’s certainly an appetite for change among consumers. Many people are still smarting from the PPI mis-selling scandal of the 90s and noughties – and the ‘Consumer Champion’ pages of most newspapers are packed with tales of hefty bank charges and bad service.

Challenging apathy

Yet, the biggest challenge the new wave of bank start-ups face may well be apathy. Traditional banks regularly offer no-strings cash bonuses and special interest rates to convince consumers to switch. But despite these bribes, the number of people switching their bank actually dropped 11% between 2014 and 2015. This statistic suggests that once people choose a bank, it tends to be for life – whatever the service is like.

However, attitudes may be changing. Knox nods to the fact that a new generation used to service-at-a-swipe expect ease of use that traditional banks can’t offer at present. Elsewhere, companies like overseas transfer specialists Transferwise and online investment management service Nutmeg are showing how start-ups can be trusted to take on services usually offered exclusively through banks, at a fraction of the cost.

What’s more, the presence of traditional banking talent at these start-ups (Starling’s founder Anne Boden used to be COO at Allied Irish Bank, while Matt Cooper from Tandem was one of the founders of Capital One) might be a sign that this is the way the industry is heading whether these start-ups succeed or not.

After the global recession critics complained that the big banks were ‘too big to fail’. But as new pretenders without branches but with new agile customer-friendly technology might prove, in reality they could now be too big to succeed.

Start-ups: in or out?

After politicians, big businesses and a raft of celebrities have all had their say on Brexit, now it’s the turn of the start-ups. And, perhaps unsurprisingly in a sector that relies on capturing international talent, most business owners seem to be voting ‘stay’.

In an open letter written by Richard Reed, founder of massively-successful former start-up Innocent Drinks, he warned that Brexit would be ‘hugely damaging’ to the prospects of start-up businesses.

“Leaving the EU will undoubtedly undermine the ability of Britain’s entrepreneurs to start up, innovate and grow. It is simply not worth the risk,” he writes.

The letter was backed by founders of online brands like Skype, Zoopla and Net-a-Porter. They’ve made their case, but whether the public is convinced remains to be seen. 

Roll on June 23 when the UK decides what the future holds.


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