What is a bank?
- 30 Mar
One of the recurring themes at this year's AltFi Europe event, organised by the excellent AltFi team, was a quest for the definition of a bank, or more particularly a bank of the future. Is it any organisation with a banking licence, an edifice with thick walls and a safe, or an institution for the receiving, lending and exchanging of money that exists to safeguard the savings and liquidity of the economy?
If many of the speakers have their way, it will be none of the above, it will be an app - a mobile interface that links together all our financial affairs, regardless of who the product providers are, with built in AI to lead us towards the best value products and achievement of our personal financial goals. Matthew Ford of Pariti summed it up well when he said: "We will build a data view around your life goals and have daily engagement. We'll have your back and being doing things for you".
Essentially then, we won't have banks as we know them, but banking marketplaces that are linked and accessed via a mobile interface. There certainly seemed to be broad consensus - amongst an admittedly biased audience - that the current account as a loss leader, which exists purely as a gateway for sales of highly priced proprietary products, was the dragon that needs to be slayed.
Well, it's a mighty vision and certainly very different to anything we have now.
The question is, is this really what customers want, and if it is, how long will it take to get there?
Earlier in the day, Samir Desai of Funding Circle had said in the opening keynote "Customers want to interact and be served by brands that are not a bank". While I can accept that consumers and businesses want choice, it feels like a big leap to say they don't want a bank. Isn't it nearer the truth to say they currently don't feel supported by a bank and hence look elsewhere? If and when the banks get the support issues sorted out, there is every chance people will want to continue to do business with them. For all their recent failings, the combination of the trust that has been built up over 200 years and the inertia of most people to do anything diffferent with something as fundamental as their banking is going to take some overcoming.
Craig Donaldson of Metro bank - a challenger bank that is on an aggressive branch opening programme - was quick to point out that the choice between a digital bank and a physical bank shouldn't be a choice at all. Customers want both.
The hardest thing all the neobanks are going to face is winning enough customers to scale. The banks have massive franchises and if the innovation and fleetness of foot of fintech innovators can be combined with access to these customer bases then maybe, just maybe, we can get large scale change in consumer behaviours, but can any one of them do it on their own? Craig Iley of Atom Bank said: "Big banks are part of the solution - collaboration has to happen" and it's hard to disagree.
So does this mean that the banks have won and we just can't do without them, that the Utopian vision of a bank of the future is just an app that connects to your bank account?
Jaidev Janardana of Zopa presented good insight when explaining the vision and rationale for their bank. True to the brand, they have gone back to the vision statement of 'the best place for your money' and the mission of 'making money simple and fair'. Zopa's view, enabled by PSD2, is that they can fundamentally change who owns the customer. Most notably, the owner of the customer no longer has to be the current acccount provider. The current account becomes a utility - like MasterCard and Visa - with the ownership of the customer moving to the provider of the interface. Zopa has the beginnings of scale, so maybe there is a glimpse of the future there.
The issue of how anybody can make any money from an exclusively customer centric approach refused to stay obediently under the carpet. Tom Blomfield, CEO and founder of Monzo maybe revealed more than he intended when he quipped that 'like Amazon, we're a charity taking donations from VCs'. A quip or not, his long term vision to attract hundreds of thousands of customers with an annual value in the mid to high £'00s has proved itself a convincing enough story to persuade more than 6,500 investors to part with £2.5m to support its latest funding round on CrowdCube. Thrive Capital, Passion Capital and Orange Digital Ventures have also chipped in with a cool £19.5m.
Real innovation only comes about when people are willing to take on big hairy audacious goals and we are rightly reminded of Henry Ford's quote about people, when asked, wanting faster horses. A next generation bank that acts in the best interests of its customers, increases customer service and reduces the cost of delivery, is achievable, but only if trusted to the hands of the bold and the brave - we win, when they win.