Fierce competition in the UK digital banking market and economic uncertainty in the build up to Brexit could have contributed to Fidor Bank’s decision to leave the UK market according to Gary Prince, founder and CEO of Astus Munia Consilium and former vice president of UK mobile payments at Barclays.
“Market uncertainty will always cause people to reflect and do things differently, perhaps not be as adventurous,” says Prince. “Brexit may have been one of the destabilizing factors for Fidor Bank, but it was likely part of a combination of several others.
“There could perhaps be the threat of a lack of investment in the event of Brexit, but there has been no slowdown for investment and fundraising for others in the space. Monzo has just raised money to move into the US. There’s no slowdown in appetite for investment in the UK fintech industry at all.”
Germany-headquartered Fidor Bank announced to customers this week that it would be pulling away from the UK banking market, four years after its launch in the country. In an online FAQ, the bank cites “uncertainties surrounding the UK market” for its departure.
“The uncertainties due to the Brexit are part of the decision to disinvest our activities in the UK,” a Fidor Bank spokesperson confirmed over email. “We are currently focusing our B2C-strategy on our home market in Germany and the B2B-Strategy of Fidor Solutions - banking as a service – internationally.” The spokesperson added that Fidor had 6,000 accounts in the UK at the time of the announcement but declined to comment further on the bank’s UK performance.
Across all markets, Fidor Bank claims 310,000 registered users. Its UK banking app was downloaded 646 times a month on average in 2018, compared to 4,833 for the European version. Fidor also operates a software and solutions division, which offers white-label open banking solutions, including a licence to operate in Europe, as well as support for compliance and risk management. Its customers include Penta and O2 Banking in Germany and Abu Dhabi Islamic Bank.
The bank is no longer accepting new UK customers, and full termination of services will occur on September 15. Customers will have access to their accounts until September 30 but will only be able to view documents. The bank will also not transfer UK customers to the bank’s German operations following the deadline, due to clashes in terms and conditions.
Intense competition from other UK challenger banks like Monzo, Starling, and Revolut and a saturation of offerings for digital-first customers could have been a factor in Fidor’s departure, according to Sarah Kocianski, head of research at 11:FS.
“An app-only retail bank account targeting young, affluent customers likely wouldn't work because Monzo and Starling have that market sewn up,” said Kocianski, in an email. “On the other hand, targeting a particular demographic as, for example, Monese has done very successfully is still a valid market entry strategy. The same goes for anyone who can do a credit card-based product successfully.”
Digital banks Monzo and Revolut launched in 2015, the same year as Fidor Bank’s UK operations, while Starling Bank launched in 2014. Monzo has since accrued more than 2m customers in the UK, and is planning a US launch. According to data from Apptopia, Monzo’s banking app was downloaded more than 300,000 times a month between January 2018 and 2019. Revolut has 3.9m customers worldwide, while Starling Bank last reported 460,000 active accounts. German challenger N26 launched in in February 2013, four years after Fidor’s 2009 start in its home market, and claimed last December to have reached 2m customers across 24 countries.
April statistics from the UK’s Current Account Switching Service revealed that Monzo is gaining 11 new customers for every customer which leaves the bank, while Starling gains nine for every one lost. Fidor does not appear in the data. A June report from Optima Consulting examined the features available in all mobile banking apps in the UK market and produced rankings on compatibility, ease of use and innovation. Fidor was placed 24th in the list, down five places from the 2018 edition.
Considerations about the end user are crucial to gaining traction with customers quickly, according to Prince. “What’s in it for the consumer, why would they open an account, what’s different? Revolut, Monzo and Starling started with great niches and created something different. But there is almost an apathy now from customers, they think ‘oh it’s another bank account, so what?’”
A June digital banking survey from Mastercard revealed that 63% of European consumers use mobile banking apps from traditional banks, 20% from digital-only banks and that 67% expected their demand for digital banking solutions to increase in the future. 54% of Europeans said they were considering switching to a digital bank, with the 18-29-year-old demographic most likely to change, at 69%.
Fidor Bank was acquired by France-based Groupe BPCE for €140m in July 2016 as part of the latter’s “Another Way to Grow” digital transformation strategy. Speaking to German publication Faz in September 2018, Fidor’s then-CEO Matthias Kröner said there was a cultural conflict between the bank and its parent. Kröner stepped down as CEO in April.
The purchasing of fintech firms and smaller digital-only banks by large incumbents has come in for criticism in the past, with Starling CEO Anne Boden stating that it directly harms the financial services industry. Kocianski said it’s “a classical hurdle of how to ensure a smaller firm acquired by a larger firm can continue to do what made it successful in the first place while also fitting into its parent company's broader strategy.”
“You’re getting a 200-year old organization buying an innovator,” says Prince. “Incumbents have a governance structure and framework that they have to adhere to, and it’s something culturally different to a challenger because [the incumbent is] risk averse. You have reams and rafts of people paid to say ‘no’.
“If you’ve got something that’s been around that long taking over something that new and innovative and then trying to overlay their processes and procedures on top it doesn’t work, they will kill it. I’ve seen it too many times, where a startup gets sucked back into the mothership and then things grind to a halt.”
According to November 2018 figures from German lobby group Frankfurt Main Finance, up to €800bn in assets is expected to move from London to Frankfurt in the event of Brexit. “The path is set for financial institutions, the Brexit plans are being implemented,” said Hubertus Vath, managing director of the group, at the time.
Sources close to the matter told Financial News in January that eight of the largest investment banks in London, including Bank of America Merrill Lynch, Citigroup, Goldman Sachs and JP Morgan, are planning to move operations to Europe regardless of the outcome of the Brexit negotiations.
For Kocianski, Brexit will continue to be a factor in any bank’s plans to enter the UK market. “I wouldn't think it would put serious contenders off,” she added. “Far more important to any bank expanding into the UK from another geography is understanding the cultural nuances of the UK market, the problems their target customers need solving and a robust business model. If they can do those things, then Brexit would be unlikely to affect their success.”
Despite this, Kocianski said that the UK might experience further retreats in the coming months. “N26's UK launch hasn't gone particularly well, though I would say that's down to poor planning and execution on their part rather than anything Brexit related. I would also expect to see consolidation in the UK market coming soon, we've already seen Loot go into administration and it won't be the last.”