The next couple of years will represent something of a landmark in UK banking – a reversal of the steady consolidation in banking and the launch of what have been termed ‘challenger’ banks. Whilst the UK has seen a fair amount of competition over the past 20 years or so in areas like savings accounts and credit cards, there has been little change in core personal banking products – full service current accounts that remove the need for an account with another bank. At the heart of a full banking service is a current account with a debit card, ad hoc payments, direct debits, salary credits and so on. This is an area where competition and new entrants have been lacking following the banking consolidation that started in the late 1960’s (anyone remember Martins Bank?) and continued up to the creation of the Lloyds TSB Halifax Bank of Scotland monolith.
We have already seen some newcomers with Metro Bank and M&S Bank (in reality part of HSBC but imbued with the M&S ethos) however this year the pace looks set to pick up with more ‘challenger’ activity.
- Tesco Bank and Virgin Money will be launching their long awaited full service current accounts this year which will make them serious competitors.
- TSB, currently a subsidiary of Lloyds, is likely to be floated this year and will start to differentiate its products from Lloyds.
- RBS is busy prepping Williams & Glyn (they’ve dropped the ’s to make it more digital friendly!) for a formal launch in 2015.
- Metro Bank is continuing to open new ‘stores’ in London and the South East and its early ‘stores’ are now profitable.
- M&S Bank is launching a new current account with no monthly fee in the Summer.
The big question is what impact these new banks will have. Will they offer serious competition with product innovation or will they merely be similar to the usual suspects? My experience with RBS’s approach to determining what the future Williams & Glyn will look like doesn’t fill me with a great deal of confidence.
Having registered my interest in Williams & Glyn I’ve been asked to complete surveys on what the new bank should be like. The common theme running through these questions (and apparently the most requested feature) is for the return of the bank manager. Whilst it is occasionally frustrating to feel that bank branches are run by people where anything more than stationery orders is above their pay grade, is that really the most important feature for a new bank?
Surely a bank that puts digital engagement at the heart of their strategy and allows customers to manage all aspects of their banking via their mobile device would be a lot more relevant to most customers? The current crop of banks are a long way from this with apps that are at best limited in functionality. The opportunity for new players to transform banking relationships via digital disruption is huge – and a lot cheaper than running vast estates of branches that were built for a different age.
Digital disruption is what will determine if ‘challenger’ banks can change UK banking.
You can follow Jonathan on Twitter @sevendotzero