You will likely have grown up knowing the ‘big four’ banks and their presence on every high street. Barclays, NatWest, Lloyds and HSBC (which you may remember as Midland Bank) were prominent in almost every town. If you needed a loan – especially if it was for business purposes – then your first port of call was the bank manager.
Gradually, the image of the ‘big four’ began to slip. They were beset by scandals, notably the PPI (Payment Protection Insurance) mis-selling scandal. According to an article published in FT Adviser in August 2019 the scandal will have cost the industry £50bn, with Lloyds the biggest culprit having – at that time – paid just over £20bn in compensation. To put that figure in perspective, the market capitalisation of Manchester United, the UK’s biggest and best-known football club, is around $2.5bn (£1.77bn) at the time of writing – making the PPI compensation bill 28 times the value of Manchester United.
So not surprisingly, public faith in the banks was starting to wear a little thin. What has really threatened the “old” banks, though, is the rise and rise of fintech (financial technology).
Many people will have heard of the so-called ‘challenger banks’ such as Monzo, Metro, Revolut and Starling. The millennial generation (roughly, the generation that came of age around the turn of the century) and Generation Z (the generation after millennials) have very quickly taken to fintech, using the various apps for transferring money, investing and saving and everyday banking. We’re now seeing the start-ups going mainstream, with Starling Bank advertising its business account on TV.
But perhaps the most compelling evidence is anecdotal. You talk to so many people now who say they simply cannot remember the last time they went into a bank branch. So what will we see in ten years’ time?
A huge reduction in bank branches is almost certain. While that may cause problems for town centres already suffering from shop closures, it is hard to see any alternative. Bank branches are expensive to maintain and they demand something that is even more costly than bricks and mortar – people!
Will this cause problems for some groups of people – the elderly, for example, who are disproportionately reliant on cash? Possibly – but while the UK may be lagging behind Sweden who are on course to be a cashless society by 2023, it seems inevitable that we will use less and less cash in the future.
Fintech will continue its inevitable rise. There will be more challenger banks, and you suspect they will increasingly define their target markets – business lending, for example, and specialise in them.
And those expensive people? Sadly, they are going to be needed less and less. Looking into the crystal ball it seems inevitable that if you are dealing with a ‘bank manager’ they will be online, on your phone or on your wrist and making lending decisions based on artificial intelligence and machine learning.