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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. 



Comments: (2)

Alexander De Lange
Alexander De Lange - Aurelia Financial Consultants cc - Johannesburg 21 May, 2015, 05:26Be the first to give this comment the thumbs up 0 likes

Maybe, maybe not. In my mind the issue is not bank vs not-a-bank, one of your own 'nagging' examples is Metrobank, a licenced deposit taking institution, after all.

The issue is that the large, 'fat' banks have created, through, at least partially, unfocussed expansion into the periphery of what used to be their core business, an opportunity for 'better mousetraps'.

As you indicate, it will not kill, them (at least not yet), but it forces them to rethink their business model: what business to be in (and even the core may be questioned here), and then fully committed to win, and what businesses to leave to the ants and various other creepy crawlies. And this needs to be synergy driven, ie which business support and enhance the core vs which do not. Since nimbleness by new entrants at the periphery will always be a significant threat in those areas, those choices need to be razor sharp.

So much for the analogies!

A Finextra member
A Finextra member 21 May, 2015, 09:46Be the first to give this comment the thumbs up 0 likes

Well, well well. An ant can actually kill an elephant provided it enters the elephants' trunk and bites it to a state of suffocation and even death ultimately. This has actually happened in the wild life :)

In the days of modern digital technologies and new consumers' whose loyalty is increasingly questionable towards universal banks (calming to be best in all segments - just does not fly), with number of banks across Europe down by almost 40% in the last decade - something is happening already. Banking will thrive but whether that will mean banks thriving is a question. The player that handles the max. nr of active payment accounts at one place is no longer a bank, but Apple. The most dominant players in remittance business are non-bankers again. Same in e-commerce where front end players have condemned the banks to offer basic card/ account mgmt. infra. (and hence take the cost and compliance worries).

The new generation of "digital ants" are very smart, as they know that feeding on banks for ever is much smarter proposition than attacking them within trunks. Paypal got the EU wide bank license way back in 2007 but then decided to not get into this messy compliance-heavy business, but use the fantastic network of (then 6100) banks as infrastructures to grow faster and deliver more value to merchants and users! 

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