Could Digital Banks Replace Traditional Banks?

The newer challenger banks - not only the digital ones - need to have a longer more established track record - before being able to appeal to more customer groups.

There has already been a huge shift to banking transactions online - even at 'traditional' banks and this will continue. I suspect those which will do best will offer a combination of app, website access and/or telephone.

The gap between old and new banks is also reducing - features like being able to block/freeze your cards online, online chats and instant notifications of transactions - which were once the preserve of digital banks - are being offered by more and more financial institutions - not just those which are only app based.

The offerings by app based banks is at the moment only really for simple products - current accounts, overdrafts and credit cards etc.

To be more functional as a customers default choice they need to offer more complex products such as mortgages but many people would like advice when purchasing such products. They also don't offer cheque books which are important, in particular, to certain segments of society, such as parents - despite the increasing popularity of electronic payments.

Existing banks have reduced their branch networks but you will note that they all consider having 600-800 branches (and post office access) is necessary to meet the needs of their customers. Metro Bank has even specifically targeted this customer segment with longer opening hours, open 7 days a week etc.

As has been mentioned, banks with physical access are also more 'resilient' if there is a crisis - i.e. an ISP, mobile operator or LINX goes down - and the newer banks have yet to face this in anger.

However, there are areas where app based banks are definitely missing a trick though - and in areas you would think should play to their strengths - such as not already having the ability for customers to pay in cheques via their apps unlike many of the big banks - meaning that even if customers want to switch totally to an app based bank, they may well keep open another account for such transactions (though you can post cheques to Monzo etc).

An alternative to issuing cheque books to everyone could be to allow someone to enter details of the payee in the app, and the firm then posting a cheque to them directly (an account I had in the US used to do this years ago).