Incumbent retail banks who have not yet developed a progressive digital strategy face significant cost pressures in the coming years, according to industry panellists in an online event today.
“Look at Facebook, Google, Amazon and so on who have been constantly updating their technology over years and years, and they haven’t developed legacy technology because they don’t develop technology in a legacy way,” said Jason Maude, chief technology advocate at Starling Bank. “Their real differentiator is not their technology – it’s their culture.”
The panel was part of the MoneyNext Summit Online.
Starling’s mobile-only, cloud-based model has disrupted the current account market, said Maude, along with other digital-first challengers.
While the pandemic has changed economic circumstances for most industries, the total number of UK-based current account switches totalled nearly 100,000 in the second quarter of this year, according to Pay.UK.
Digital banks have tried to adopt strategies akin to the big tech players said Maude, with many attempting to move quickly while maintaining reliability and security.
“The barrier to doing that in other big legacy players is the fact that they have themselves set up to do these things in a very human intensive manner,” he said.
“So they need a lot of humans to manage and develop projects and processes. The problem is if they do switch to doing things in a much more agile and lean way, they will find that they don’t need all of those people who manage all those people and projects as much – which worries those people, and puts a bit of a break on those people.”
Also on the panel, Railsbank CEO Nigel Verdon said pressure on cost income ratios and the reality of a negative interest rate environment “for the next twenty years”, is going to place significant tension on slow moving incumbents.
Verdon pointed to a Gartner report published in 2018 that suggests “heritage” or incumbent banks and financial institutions will be out of business by the end of this decade.
"Reconfiguring the industry cohesively to actually work together rather than everybody trying to be a digital bank and make the wonderful mistakes that some have – like NatWest with their Bo product – we need to be wary of throwing £100m down the drain for 11,000 customers.
“The challenge we need to work to as an industry is we can’t have fintech versus banks, it needs to be old world and new world working together to deliver good value.”
“We need to figure out how to fix the cost issue,” said Verdon.
Maude went on to argue that banks need to find ways to change culture without negatively impacting the customer experience or making immediate wholesale internal changes.
“They need to change their mindset about how to relate to technology whilst not having to go through sudden and painful restructuring of their employee base in a way that they can manage to lower their costs while still maintaining what they give to their customers,” he said.