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Savings are still all the rage for fintech but why are big banks so complacent?

The clash for consumer savings has transformed into a tumultuous battlefield between fintech startups and traditional banks. Fueled by venture capital firepower, differing risk approaches and complacency over customer loyalty.

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In the ongoing fintech battleground between startups and big banks, cash savings have emerged as an unlikely, somewhat dull but important theatre of all-out conflict. 

In short, neobanks and others are relentlessly pursuing consumer savings. The traditional banking behemoths, meanwhile, seemingly entrenched in their complacency, have not fully embraced the challenge presented by fintech firms.

Instead, they continue to prioritise other areas of their business rather than fiercely competing for consumer savings. This strategic choice raises probing questions about the banks' underlying motives.

That isn’t the completely accurate picture though, with JP Morgan - one of the biggest banks in the world - using its fintech challenger Chase brand to lure away customers from their traditional high street bank with a boost to its savings account rate to 3.8% after the Bank of England ‘super-hike’ on Wednesday.

As I wrote about at the start of 2023, several fintechs made rapid moves into the savings markets, as central banks rapidly began to rise interest rates.

More savings means the ability to lend more and make more money in terms of their net interest margins.

Atom Bank, the first app-only UK bank, was an early mover in February of 2022 to the game with CEO Mark Mullen saying at the time:

“In contrast to most banks, who continue to offer rock bottom rates to savers, we have increased the rates across our savings range for the second time this year. Savers have had it rough for a long time, and traditional high street banks have done very little to support them for many years.” 

“The notion that many banks take away the umbrella just as it starts to rain is clearly illustrated by their reluctance to pass on the returns they are making and the recent base rate movements to savers,” he added.

Zopa, Emma, Revolut, Starling Bank, Kroo and many others joined in too.

Oxbury, an agricultural fintech bank (yes you read that correctly) now has the most competitive easy access savings account in the UK at 4.1 per cent. 

The fintech raised a £31m Series C funding round in March 2022, later scoring a further £25m funding line from British Business Investments in August of last year. This, alongside its swelling savings business, will help it hit nearly £1bn of lending ​​this year.

Several High Street banking names meanwhile, have come under intense criticism for avoiding passing on rate hikes to savers in the past 18 months. 

Fintech startups, armed with their disruptive technologies and innovative business models, have launched an audacious assault on the traditional banking establishment. 

Yet, amidst this clash of titans, looming questions emerge: How do these fintech startups secure the resources to fuel their incursion into the savings market? 

Does the complacency of big banks in the face of eroding customer loyalty also raise questions about their strategies?

Ironically, as fintech insurgents march forth, the traditional banking behemoths reveal a perplexing reluctance to engage in an all-out battle for consumer savings.  These titans, seemingly entrenched in their complacency, have yet to fully embrace the gauntlet thrown down by fintech firms. 

Why? 

This strategic choice raises thought-provoking questions about the banks' motivations and their perception of customer loyalty in this age of disruption.

The reticence of large banks to aggressively compete for consumer savings might stem from an unwavering faith in the fidelity of their existing customer base. These banks, fortified by their long-standing dominance and the inertia of customer habits, believe that loyalty is an unwavering fortress impervious to the siren calls of fintech upstarts. 

This complacency, rooted in the presumption of unyielding customer loyalty, compels banks to focus on maintaining profitability through existing products and services while paying scant attention to the urgent need for competitive savings offerings.

Nevertheless, this complacency should not be mistaken for invincibility. 

Should the banks fail to mount a robust response to the burgeoning fintech competition, they risk alienating customers who are increasingly enticed by the convenience and bespoke experiences offered by these nimble insurgents. 

As customer loyalty hangs in a precarious balance, banks confront the haunting spectre of not only losing their footing in the savings realm but also jeopardising their broader relationship with customers just when the market cycle turns and profitable lending and mortgages will skyrocket in demand. 

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