It was a pleasure to chair a session this week in GlobalData’s virtual banking conference, discussing the future for digital challenger banks.
The most enjoyable task was made easier by having a stellar panel including Vikki Williams, formerly of Nationwide and Starling Bank, Francesco Burelli, partner at Arkwright and Tristan Pelloux, Director at Strategwhy.
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While technological prowess confers many advantages to the challengers, the fact remains that maybe only 20 of the 400 neobanks around the world have solved the problem of achieving customer profitability.
And while early bets placed on key technologies have provided a sound foundation for future product development and operational efficiency, the conference discussed the missteps made, and advantages that have transpired for incumbents. In addition, the conference assessed the wealth management industry for a ‘lessons learned’ evaluation of robo-advisors and the parallels with banking.
Accounts and card-based products have served the neobanks well in terms of growing customer numbers and are simple, entry products but too often serve as loss leaders. The reasons are many but include limited consumer willingness to pay, server competition from the legacy banks and regulatory caps on interchange.
One area the panel noted that will be one to watch is the prospect for M&A activity to ramp up. We have witnessed the start of some consolidation with deals such as Orange/Anytime and NAB/86 400. How long before a number of players lose the support of their backers as the goal of profitability remains elusive while the few profitable players acquire loss-making strugglers?
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