In the decades before 2008, banking was synonymous with twisted ques of people passively checking their watches and suited clerks dotted about ready to intercept a customer on the first hint of agitation. Then the 2008 financial crisis, coupled with growing digital innovation, shattered the trust in the banking system and hollowed out the large cathedrals that are high street branches. This made for the perfect conditions for a new type of revolutionary banking to innovate and slowly contest the sunlight that the banking industry had for so long captured. In the case of fintech firms like Monzo, it has inspired a cult-like following of millennial believers viewing themselves as pink card wielding Spartans of Thermopylae or defiant QR code scanning followers, defiantly crossing the alps like Hannibal Barca ready to descend on the old institutional giants of banking. Additionally, the pandemic has signalled a new wave of fintech start-ups, all looking to capture a market of digitally integrated consumers who have been forced to drop their nostalgia for physical payments and adopt a digital mindset. All this amalgamates to an increasingly contested banking system, where once all the financial products a consumer could want could be found at their local branch, but they are now left with the situation where they can choose non-banking contenders as well.
The financial crisis of 2008 destroyed the trust consumers had in the banking system, creating images of greed, corruption and ultimately allowed space for new champions to grow. The result has been fintech firms like Monzo, which pride themselves on a transparent, democratised model of business that puts its customers first. They have skillfully utilised crowdfunding to bind customers to the Monzo story and issued golden tickets to foster feelings of exclusivity and appreciation. Consequently, this helped them overcome their largest obstacle which is building consumer trust in their platform and mission. As a result, Monzo is now home to the savings of 5.27 million people and is known for solving problems rather than selling financial products. However, the fintech revolution goes beyond London based fintech’s like Monzo, with Ant (Ant group), Alipay (Alibaba) WeChat (Tencent) dominating financial innovation in China. Following on, Alipay and WeChat process 90% of mobile transactions in China, with Alipay responsible for $16trn in payments in 2019 (The Economist, 2021). These online payment companies have experienced supercharged growth due to the coronavirus pandemic, with PayPal doubling its market value and making it the world’s most valued payment platform. In truth, fintech is heating up with companies like Uber defeating South-East Asian ride-hailing firm Grab looking to enter the scene. When the crowds of scraggly looking gap year revellers use Grab in search of their next destination, they may well find that they can also manage their finances from back home or pay for their Banh Mi’s or tasty bowls of Pho Bo. The growth of fintech’s is daunting for the banking sector, the economist reports that in 2007 global assets of non-bank firms was at $100trn, equal to 172% of gross world output and 46% of total assets. As of 2019, this had grown to assets of $200trn, equating to 228% of gross world output and half of the total assets. All this amounts to the cream of the banking sector slowly being skimmed off by innovative fintech platforms which are successfully winning the trust of young consumers and in emerging countries where mobile payments are more widely used. This has helped expand access to credit and with tech firms being able to utilise their vast pool of data, it could well reduce the risks of lending. However, traditional banks will continue to occupy the centre of the financial system, it may just have to open its court to young upstarts with millennial values.
To sum up, the future of finance is digital and there is a new host of fintech firms hoping to capture some of this market. The banking industry will face many challenges, from crypto, fiat licensed digital currencies and the eroding effects of fintech. However, as long as banks remain the home of depositors they will cling onto their crown. Lastly, as firms like Monzo come of age, just like the experience of most teenagers, they will also have to face pressures from regulators to act like grown-ups and also still retain their youthful image so popular with millennials. What are your thoughts? Do you miss the days of waiting in queues at a local branch or are you a convert to fully digitalised banking?
Henri Willmott,
Content Manager