App-only Start-up Banks – A Threat To Traditional Banking?

App-only Start-up Banks – A Threat To Traditional Banking?

Now that nearly everything can be done via an app on our phones, such as seeing a GP or getting a flight boarding pass, it’s not surprising that banking has also followed suit, with many app-only banks appearing in recent years as an alternative to traditional banking, such as Monzo and Atom. However, questions have been raised about their profitability and popularity, as a recent RFI survey of over 2000 people from the UK found that people’s willingness to bank with a digital-only startup fell from 78% at the start of 2017 to just 54% at the end of the year. Globally, RFI found that demand for a digital-only banking provider decreased as well, although less drastically: from 50% to 44% between the first and second half of last year. However, despite this, RFI found that the proportion of consumers using any form of digital banking around the world actually rose from 58% to 68% across 2017, which indicates that consumers appear to be preferring digital offerings from existing banks, not start-ups.

Business Insider

Existing banks should not get too comfortable, though, as there is clearly a demand for more flexible, modernised banking. 2010 saw the launch of Metro Bank, the first new high street bank in the UK for 150 years, which provided non-traditional services such as instant card printing over the counter for new customers as well as Sunday opening hours. The entrepreneur behind the launch of Metro, Anthony Thomson, is also the man who launched Atom Bank in 2016, which saw 5000 new customers on its first day and had to start turning customers away due to unprecedented demand.

The profitability of these app-only banks has previously been doubted, as Monzo and Atom are yet to turn a profit; however, last month, Revolut became the first UK-based app-only bank to break even, having launched over two years ago in July 2015. They currently have 1.5m users across Europe, and in November last year applied for a European banking licence, which will only increase their popularity and customer base. Revolut functions primarily as a foreign exchange card, giving users a contactless Mastercard that allows free cash withdrawal in 120 currencies at interbank exchange rates (up to £200/month, after which there is a fee of 2%), but can also be used as a regular UK bank account. Founder Nikolay Storonsky said that Revolut has over 600,000 active users per month without spending a penny on marketing, which is a testament to the level of convenience they offer consumers.

Kate Mikhaylenko

Image: [Maven Adviser]