When is a Bank a Not-a-Bank?

There is a right old buzz about the new wave of “challenger banks “and “non-banks”.  But what you won’t find is much about what this means.  What is going on?  Which are banks?  Which are  not?  And if not, what are they? 

Indeed there is such a wide range of definitions that, for instance, on Thursday night this week at the Retail Banking awards dinner, the flagship event of the banking industry, our own Ffrees is nominated as the best "non-bank" for 2015 (for its ethical current account business model) but, paradoxically it might appear, has stiff competition from the two terrific peer-to-peer lenders, Zopa and Ratesetter. 

Equally you can read lots about Aldermore and its stellar valuation,  MetroBank and its US Retail glitz, and even Atom with its marketing (it hasn’t even launched and yet is already darling of the media). 

So what’s really going on here? The analysts’ attention and the industry-wide anticipation for their success does though tell you one thing, that the media hype, the will of those at the helm of our country, and the desire of the consumer is creating a momentum for change is increasingly hard for the banks to resist. 

Underneath the surface of course this is not a new wave of massive banks.  Our huge retail banking operators have their problems, but they are not about to fall-over (thank goodness), nor are they going to retreat.  Their sheer scale and er, fatness may make them vulnerable to attack but not to defeat, certainly not in the immediate future.  Think of us as Ants on the Elephant.  We sting and we irritate but it takes a whole lot more to take them down. 

But what the Elephant should be wary of, and may be gradually realizing, is that the Ants are not their only threat.  The non-banking assailants are a wide range of insects, all simultaneously attacking the Elephant at a time when his very habitat is also creating him problems.  Think of wasps, bees, mosquitoes AND ants, not working in concert but sensing a vulnerable lumbering giant, distracted by any number of environmental issues, human hostility, everyone taking pot shots and so on.  

Meantime the insects thrive.  The Ants attack the eyes, the mosquitoes go for the exposed fleshy parts, bees in the ears, and any number of irritants are crawling up parts you don’t want to think about.  These then are the fintech challengers fuelled by investor capital and hungry for their slice.  They are disaggregating the services that banks offer and picking at them in isolation.  

Zopa wants the lending, Ffrees wants the current account, Aldermore wants the SME Business sector, Atom wants the pure play digital, Metro wants the retail and so on.  Some of us really are not-a-bank, and can only described as non-banks.  Some are banks.  But we all have one thing in common.  Whilst not separately a threat, our combination does represent a disruptive challenge to the banks.