This article was produced by (E) BrandConnect, a commercial division of The Economist Group.
Banks have been facing a crisis of confidence since the financial and economic crash of 2008, says KPMG’s Peter Rothwell. New technology and changing customer demands mean that, by 2030, that crisis could become existential. Will we need banks in the future—or just their services?
“As recently as the early 2000s, you would go to a retail bank and they would try to cross-sell you all of their different products, and many of those were not price competitive,” says Tom Blomfield, cofounder and CEO of digital bank Monzo, founded in 2015. “And so, over the past ten or 15 years, we've seen a wave of disaggregation—new fintech competitors providing point solutions, single products with great customer service and pricing.”
FinTech companies, which use data-driven technology to automate many of the financial services traditionally provided by banks, have been the big disrupters of banking over the past decade or so, offering faster, easier-to-use and cheaper products to personal and corporate customers. Many, like Monzo, are UK-based, including TransferWise, which has reduced the cost of cross-border transfers, and Nutmeg, which uses data to help customers manage investments. UK fintech startups attracted $20.7 billion in funding in 2018, trailing fintech investment in the US ($52.5 billion) but coming in ahead of China ($18.2 billion).
By 2030, however, Mr Blomfield foresees a shift back towards reaggregation in the sector. “Instead of having to maintain 15 or 20 different apps or logins, you’ll have a single aggregating financial app that then pulls in all of these different products and services under third-party brands,” he says. Monzo already has a number of partnerships with other providers in place, including TransferWise for foreign-exchange products and fintech startup OakNorth for savings vehicles, and has entered into an agreement with Ohio-based Sutton Bank to give it access to the US market.
And, he believes, the sector will ultimately be split into two: “On the one hand, there will be banks with very, very large balance sheets, but with almost no brand, no physical presence—like big oil tankers providing money,” he says. “And on the other, platforms that are focused on the functionality that customers want.”