Digital banks are another example of Fintech players in the market which are on the verge of disrupting banking as we know it. For a long time, the term “digital banking” has been used to refer to an app that a regular bank would provide for its customers’ mobile devices, which would in turn help the customers track their monthly payments, transfers, balances and so on. This was the effect of an 84% increased innovation investment on the part of traditional banks, between 2013 and 2015, in order to keep up with the ever-evolving banking habits of millennials (Source: Fintech News). Recently, UK-based banking startup, Mondo Bank created history by completing the fastest crowdfunding ever, reaching its £1 million fundraising target in just 96 seconds. This mobile bank had 1,861 individuals invest an average of £542, which stirred up the digital banking field.
Mondo’s initial success gave new energy to the founders of Fintech startups like Atom Bank and Starling Bank, who had already started creating mobile banks from the ground up without having actual physical establishments in order to reduce operating costs and live up to the expectations of providing an application and/or a website that is truly mobile. The fact that there are currently more than 83,000 people in a virtual queue, waiting for a chance to sign up for the Beta trial version of the Mondo Bank app speaks volumes about the effects it has had on its target audience. It demonstrates a changing market perception that there is indeed a need for innovation from both new and traditional banks, in order to provide flexibility and alternatives to level the playing field.
The whole process of banks going digital started in the aftermath of the 2008 financial crisis, when the Bank of England loosened regulations, which led to a new breed of competitors coming into the market. In 2013, in an attempt to introduce more competition into an industry that was progressively being seen as impeding transparency from the outside and had almost lost touch with its customers, the Bank of England revealed a simplified two-step process with lower capital requirements for setting up new banks. Fast forward to 2016, and some of these new-age banks are already on the verge of getting actual licenses to handle the public’s money. By creating the possibility of taking brick and mortar branches in expensive locations out of the equation, the market is now open to challenger banks which can focus on providing easy to set up accounts in the palm of their hands, more attractive rates/fees and encrypted security systems to protect its customers’ liquid assets. While banks have expertise in working with regulators and provide vast customer bases, Fintech startups come with agility, innovation and flexibility. These complementary skillsets, if leveraged, could in turn create a better financial experience for customers and help create a cushion for the banking sector to avoid financial crises in the future.
M. R. C.
This is part of our series articles in the International Corporate Finance Report.