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One in 10 European banks today will be gone in the next five years as they lose revenue to challenger banks and new financial technology-based (fintech) financial service firms.
A study carried out by management consultancy AT Kearney said that traditional retail banking revenues will stagnate and new challenger banks will grow their market share.
The study found that since 2011, new banks offering digital-only services have increased their customer base across Europe by 15 million, while traditional banks have lost two million customers.
AT Kearney predicts that, by 2023, 85 million Europeans will use the digital banks that are the challengers today. These banks include the likes of Monzo, Atom, Revolut, Starling Bank and Tandem, with other fintechs taking on specific financial services niches such as payments.
Challenger banks in the UK alone have already attracted millions of customers. Many of these customers are using them as a second bank and taking advantage of the latest digital payments technology and account management apps. But over the next few years, this could change and more people could favour them as their primary bank account providers.
Simon Kent, partner and global head of Financial Services at AT Kearney, said the 10-year study shows that while the industry is stronger, it is also stagnating. “Not all banks will survive the tide of change as customers increasingly favour digital banks and innovative products and services,” he said.
He added that branch closures by traditional banks will cut costs, but it is not enough to save banks that don’t embark on a strategic transformation. “They need to improve cost and top line and offer more innovative products and services if they are not only to survive, but thrive, in the new retail banking landscape beyond 2019,” he said.
The AT Kearney study found that Europeans are becoming more willing to share personal data with banks. This will help open banking take-off and further hasten the fall of some banks.
Fintechs will be able to use the open banking rules, introduced through the EU PSD2 and the UK’s Open Banking regulations, to give customers more information about the best financial services for them. This will inevitably lead to a reduction in the share of customers for large traditional banks, particularly those that have failed to keep pace with industry changes.
Daniela Chikova, partner at AT Kearney, said: “The shift towards digital banking, only compounded by the introduction of open banking, has caused a transformation in how and where customers want to bank.
“They’re more open to sharing their data with third parties, have greater trust in banks’ ability to hold their data safely and, particularly among younger generations, don’t have a need for in-branch banking anymore.”
Read more about challenger banks
- The biggest surprise for Tandem Bank when it moved customers it gained through acquisition, to its systems, was that not having the title Dame in its database could be an issue.
- Thousands of people a week are downloading a new banking app on their smartphones to sign up for the services of app-based challenger Starling Bank.
- Following an invite-only launch and some fine-tuning, digital-only Atom bank is now fully open in the UK.