At the start of December 2015, The Bank of England granted Tandem a banking license. It became the second digital-only bank in the United Kingdom, causing many to predict the downfall of many of the UK's bricks-and-mortar branches.
While challenger banks haven't been met with consistent success - so far they have struggled to compete with high-street banks for market share - this second wave of Fintech banks could see banking become a prime target for digital disruption.
Before Tandem's license was announced, the former CEO of Barclays, Antony Jenkins, predicted a period of upheaval for the banking industry: 'The incumbents risk becoming merely capital providing utilities that operate in a highly regulated, less profitable environment, a situation unlikely to be tolerated by shareholders.' Business Insider called this an 'Uber style disruption' with traditional banks standing to lose half of their workforce, and around 60% of profitability in some divisions.
Like Uber, Fintech startups have the capacity to do everything a traditional bank can - albeit on a smaller scale to begin with - but faster and cheaper. Due to this, services such as lending and wealth management are likely to be disrupted, causing potentially irreparable damage for the high-street bank. And to some extent, this is already happening. We, for example, featured an article on TransferWise and how they have made international payments cheaper for customers. The company recognized that if we are to operate in a globalized economy the public shouldn't be charged admin fees for transferring money abroad. The service's success shows that banks are already being disrupted, with other companies - such as Funding Circle and Square - doing similar things with lending and payments.
What this will lead to is traditional banks automating their work. Antony Jenkins stated: 'I predict that the number of branches and people employed in the financial services sector may decline by as much as 50% over the next 10 years, and even in a less harsh scenario I expect a decline of at least 20%.'
The rise in Fintech startups was mainly born out of the the 2008 Financial Crisis, which caused real mistrust within the banking industry. It also led to much banking regulation which made customer needs more central to the decision making process. Now, it's a question of whether the industry's traditional banks can make good on their more customer focused strategies, while also embracing new technologies to improve efficiency. Next year will, however, be crucial to the industry's future and determine whether Fintech startups have a reasonable chance of disrupting the high-street bank.