Opinion Digital Banking

What does the perfect bank look like?

Are we witnessing a convergence in banking models? Will the app banks of the future have branches?

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Yesterday saw RBS and NatWest announce their latest bout of branch shedding, closing 158 branches and cutting more than 400 jobs. RBS blamed a dramatic shift in the way that people bank, with its branch transactions falling 43 per cent since 2010, while mobile transactions have increased by more than 400 per cent during that time span. This continues a broader trend in banking. Lloyds announced the closure of 200 bank branches in July of last year, again citing increased mobile usage among its customer base.

Meanwhile, digital only banks are locked in a frenzied growth phase. Both Revolut and Monzo have staged equity crowdfunding rounds of late, as part of larger institutional fundraises.

Revolut has been expanding its product set at an especially rapid rate. In the last few months alone, the app has launched a current account offering, an instant credit product, a new property investment channel and a new subscription service (centred around global remittance), which is perhaps unique within financial services.

Are we to interpret the actions of RBS,NatWest and Lloyds as validation for the app based banking model? And as these megalith firms continue to shed physical infrastructure, is a natural convergence point between the old and new worlds of banking looming into view?

If it is, challenger bank Metro bank will be lurking somewhere close by. Metro became the first new UK bank in over 100 years when it received its banking license in 2010. Best known of the challenger banks, Metro now has 48 branches across the UK. Considerably less than its incumbent rivals, but substantially more than the new waves of digital only disruptors.

Speaking at the Economist’s Finance Disrupted conference in January, CEO Craig Donaldson said that the blend of technology and physical infrastructure – rather than a blinkered dedication to one or the other – is the key to giving greater choice to customers. He also said that Metro would probably need around 250 branches to achieve full UK coverage.

Is it inconceivable that the Monzos, Tandems and Atom banks of the world will one day have branches? Does it not, in reality, depend upon the scale of their collective ambition?

Zopa, the world’s original peer to peer/marketplace lender, recently announced that it would be pursuing a banking license. For the grandfather of the marketplace lending industry to take this tack is significant. It tells us that fintech firms are every bit as opportunistic as they are evangelical. A regulatory window of opportunity to launch a next generation banking service presented itself, and Zopa jumped at it.

What's to say that other kinds of disruptors won’t behave in a similar way in the future, should the opportunity to establish a smarter branch network present itself? Clearly, a firm like Monzo is never going to have hundreds of bank branches. But could it have one? Ten? Fifty? Perhaps.

It all comes back to the question: what is the perfect banking model? Events like RBS's recent bank closures – and indeed Monzo’s card problems, and Tandem’s inability to offer savings products due to a lack of regulatory capital – all combine to suggest that it rests somewhere between the old and the new.

You can learn more about the future of banking at the AltFi Europe Summit, which takes place at The Brewery in London on Thursday 30 March. 

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Craig Donaldson

Chief Executive Officer

Metro Bank

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