The Future Of Banking?

Does the future of banking lie online?


The Bank of England recently granted Tandem - a digital banking startup backed by Capital One's co-founder - a banking license, which could see it take on some of the UK's leading high-street banks.

Tandem is the second digital-only bank to be granted a banking license, with 'Atom bank' given approval in June 2015. In 2010, 86 million transactions were carried out on mobile - it's over ten times that amount now. The biggest loser has been the bricks-and-mortar bank, with transactions made in-brand expected to be slashed by a further 150 million over the next five years.

While mobile is now the most popular way to bank, previous challenger brands have been met with varying degrees of success. Many have found it difficult to build market share, with the reputation of dominant banks still enough for strong customer retention rates.

Described by the FT as the start of the 'second wave of startup banks' in the UK, Tandem's other co-founder, Ricky Knox, has a history in fin-tech. His previous ventures include, SmallWorldFS and Azimo, two currency businesses. Yet Tandem marks his first foray into digital banks. According to Business Insider, these institutions will now be called 'neo-banks' as they are mobile-focused and have no branches. Tandem has already raised £100 million, and will offer a number of consumer products, including current accounts and mortgages.

Knox believes that retail banking is set to become the latest industry to be disrupted, as 'there's a new generation of people who have very different relationships with their institutions.' He also believes that a successful digital bank would challenge behavioral patterns, not only within Generation Y, but also older generations, claiming that he would target 'the vast majority of the UK's population' in an interview on Business Insider.

The journey for Tandem won't be smooth. While perceptions are changing, the neo-bank will need to build trust with consumers and analyze where opportunities lie. For example, Knox points to loans for housing deposits as a possible area they could look into: 'Right now it’s pretty tricky to get a loan for a deposit, in fact banks actively avoid deposit loans.'

As mentioned before, challenger banks haven't been highly successful up until now. The emergence of similar neo-banks, not only within the UK, but in many nations across Europe, shows that banking is increasingly becoming affected by new entrants hoping to disrupt the market.

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