Last week, fintech influencer Devie Mohan partnered with FinLeap, the Berlin-based company builder, to launch her new fintech research company Burnmark. This organisation will continue to do what Mohan does best – predict fintech trends – and will solidify her current role advising banks, consultancies, innovators, accelerators and investors on their fintech strategy. Following the launch, Mohan will support FinLeap as their UK market strategist while holding her position as the co-founder and CEO of BurnMark.
“There is a lot of hype about fintech at the moment, but no one has so far done any strategic market analysis to measure the true impact of the new technologies on multiple industries. Burnmark is being launched to fill that gap and to bring global success stories to the desk of every decision maker,” Mohan said in the launch press release.
In addition to this, co-founder and managing director of FinLeap, Ramin Niroumand, said that working with Mohan will help maintain a strategic approach in the fintech space.
Burnmark’s first study focuses on the impact challenger banks are having on the traditional banking sector and explains how certain trends have resulted in big changes in the UK and Europe in terms of innovation. Post-2008, the loss of trust meant that incremental reform continued to occur and alongside this, as technology evolved, customers expected a Google- or Facebook-like, user-friendly, simple solution to bank with. 2016 has welcomed a new breed of customer-centric financial institutions, as Burnmark explores in the report, and these are more commonly known as challenger banks.
30 challengers have applied for a banking licence since 2012, though just eight were granted by regulators between 2010 and 2015. In the last 40 years, 20 have been given out in total. 2016 has definitely been the year of the challenger bank with Monzo Bank gaining a licence and following in the footsteps of Starling Bank and Masthaven Bank just this year. The Burnmark report split challenger banks into three ‘personalities’:
- Embryonic Challengers: Fintech innovators on the banking value chain who operate only through mobile apps in partnership with traditional banks or other (bigger) challenger banks.
- Real Challengers (or, just challenger banks): Non-existing banks which have obtained a banking licence in the last three to five years or are in the process of procuring a banking licence and has digital as the only or predominant channel for engaging with customers.
- Pseudo Challengers: The digital subsidiaries, digital partners (neo banks) and digital startups of existing banks which engage with customers through both branch and digital channels.
As the image portrays, banking has gone through a digital Darwinian evolution, from the establishment of large challengers like TSB, to neo banks, to digital subsidiaries, to digital native challengers to what could be the future of finance: the digital only embryonic challengers. With this evolution, Burnmark also explained how there has been a shift in demographic. “The millennial generation in the US is now 92 million compared to 77 million of baby boomers and in the UK it is 13.8 million – this is a population of consumers who are digital natives, socially hyperconnected and increasingly concerned about financial stability due to their early years being spent in a drawn out financial crisis,” the report stated.
As many have said before them, and even I have said earlier on in this article, the emergence of simplified services like Google, Uber and Airbnb has resulted in millennials being comfortable in the exploration of banking with those other than the traditional players. In addition to this, lack of trust and lack of confidence are key reasons why the younger generation is deciding to move away from the big banks. Confidence in the banking industry varies from country to country, however:
- Italy - 24%
- UK - 33%
- France - 33%
- USA - 37%
- Germany - 40%
- Czech Republic - 50%
- Estonia - 55%
- Luxembourg - 66%
- India - 70%
- Malta - 72%
- China - 72%
- Philippines - 77%
- Malaysia - 86%
- Thailand - 89%
Another factor that must be considered is the smartphone penetration and many challenger banks are focusing on providing mobile only services, and this varies from country to country too.
- Singapore - 92%
- South Korea - 82%
- UK - 75%
- USA - 70%
- Germany - 65%
- Hong Kong - 63%
- China - 58%
- Israel - 57%
A major reason why challenger banks have been allowed to flourish is because governmental organisations have been established in order to support new fintech startups and sandboxes have been recently set up so that companies can start to operate in a safe place unburdened by regulation. Many countries are maintaining this system and this is why fintech companies are like a moth to the flame when it comes to setting up in the UK, Singapore and Hong Kong – all very big fintech hubs.
While regulators are becoming increasingly fintech friendly, “achievement of economies of scale in a short timeframe, high customer acquisition costs and heavy competition in niche markets are real issues facing challenger banks today” the report said.
However, Burnmark states that Generation Z will treat content differently on the internet than the millennials currently do, as they will value content ownership and privacy and worry about financial stability and mistrust content-based monetisation – all of this could impact the challenger banking industry. But the real question here is whether or not they will be able to adapt to the changes in a way that is better than the traditional banks.