Banking is undergoing a digital disruption that will change the whole business model of the industry and that is a change fintech firms such as Atom are primed to take advantage of
If you’re looking for a clue as to what the future of fintech could look like, the best place to start is the automotive industry. For more than 100 years, car makers have relied on the fossil-fuelled internal combustion engine to propel their vehicles. Consumers have grown up with ‘forever brands’ – behemoths such as Volkswagen, Ford, Toyota, Fiat and Mercedes. Not so long ago, the car manufacturing paradigm of global multi-brand owners making petrol and diesel cars seemed like it would last forever.
Enter climate change, however, and in little more than a decade car makers have been forced to confront a new and brutal reality. They need to move on from the internal to a future where the electric motor reigns supreme. And while it seemed inconceivable that a new car maker could challenge the might of the big car manufacturing brands, today Tesla is the world’s largest automaker by market value.
Banks are much older than car makers – indeed banking is one of the world’s oldest professions. This is so much so that from time to time some of the bigger banks like
to remind us just how long they’ve been around, as if that was the only thing of merit they could legitimately claim. The banking paradigm has survived war, pestilence and social upheaval, but for more than a decade now, banks have been under constant and intense assault.
Tougher capital rules in the wake of the banking crisis, low interest rates, massive mis-selling fines and the impact of mobile technologies on customer behaviour have combined to make these years among the most difficult in the history of the industry. To add to the banks’ woes, after almost 100 years without a newly authorised bank to offer competition, challenger banks, neo-banks and fintechs firms have arrived on the scene, ready to do battle. Hundreds, if not thousands of new fintechs, have been purposefully invented to undermine bank revenues and to dislodge bank customers. They exist to disrupt banking.
The disrupters come in many forms. Some offer new current accounts, some focus on foreign exchange and travel money, some – like Atom – offer savings and loans, but all are looking to grow at the expense of the established banks.
For the majority of fintechs firms it has been a very tough slog. Established banks don’t give up easily. Theirs is a business model that relies on customers who open a current account when they are teenagers and then stick with that same bank until the grim reaper arrives to gather his harvest. Theirs is a business model that appears to give services away free of charge, but all too often recovers the costs of doing so from those who are least capable of paying. Theirs is a business model that purports to offer all things to all people within a convenient one-stop-shop, but usually ends up delivering low levels of service and high levels of mistrust.
History is littered with previously untouchable businesses that have ultimately been disrupted – the business equivalent of getting cancelled. Flag-carrier airlines, high street fashion retailers and big-name supermarkets have fallen by the proverbial wayside. A new business that can do something better or that offers better value than an incumbent will do well. But a new business that can do both will thrive. Needless to say, that’s our ambition for Atom.
The future of fintech is the future of banking in much the same way that electric motors are the future of car propulsion; there is no meaningful distinction between the two. Established brands that can adapt might endure into the future but those who can’t will almost certainly fade away.
The wholesale digitalisation of money and of banking has changed the rules of the game. The familiar universal banking model with its branches, contact centres, internet banking, mobile apps, and decades of technology and cultural legacy is horribly inefficient. In an increasingly digital economy, inefficiency is weakness to be exploited. The legacy banking brands, just like the legacy car manufacturers, really are ripe for disruption.
Specific brands might not be guaranteed to survive but banking itself has a long life ahead of it. The banking model is an efficient, rules-based construct – it’s the bankers who turn that efficient construct into inefficient businesses. The relentless digitalisation of every aspect of the model, from how banks interact and provide information to their regulators through to how they use AI to optimise lending decisions, will inevitably transform them into software companies free of any residual physical manifestation. Fintech companies, however, are already there.
Don’t forget, Tesla builds cars because cars create value for customers – they want and value the convenience of personal transport – otherwise, Tesla might well have chosen to make trains or buses. However much they are unloved (and let’s be honest there’s more than enough ‘unlove’ to go around), banks also create value for customers. We have heard some very clever people declare that innovations such as cryptocurrencies will replace the currency and banking systems that exist today, but we should be cautious – it’s hard to know in advance which disruptions will lead to better outcomes for customers and which to outright anarchy.
But nothing lasts forever. Right now, electric motors rely on a group of metals called ‘rare earths’ to provide the stored energy they need for power. The clue is in the name – these are scarce, finite and expensive, and there simply aren’t enough to go round. And so we need to keep innovating. And we shall.
The same will be true for fintech firms.
For more information please visit atombank.co.uk
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