Could Digital Banks Replace Traditional Banks?

unrecordings wrote: »

The thing about disruptive technology though is that it's often designed by people with no knowledge of the sector, and coded by graduates who may be brilliant at what they do, but have next to zero real life experience translating human behaviour into their model, along with poor middle management. When it works, everything is new, exciting & tickety boo, but when it fails... ...take Quadriga for example

One key advantage the "digital banks" have is just the straight fact of starting from scratch and building new systems from the ground up. The established banks don't necessarily lack ideas, or drive, or talented people: the thing is that everything moves slower because of the difficulty of changing systems and processes that are in use every day, have been built over decades, and when things go wrong it has major consequences. Clearly you can do a better job than TSB did, but it's never going to be seamless.

Perhaps (and maybe the OP wants to consider it for their project ) incumbents acquiring the digital banks will be the way that new clean technology stacks are combined with the capital and the compliance capabilities that are needed to do retail banking at scale.

londoninvestor wrote: »

One key advantage the "digital banks" have is just the straight fact of starting from scratch and building new systems from the ground up. The established banks don't necessarily lack ideas, or drive, or talented people: the thing is that everything moves slower because of the difficulty of changing systems and processes that are in use every day, have been built over decades, and when things go wrong it has major consequences. Clearly you can do a better job than TSB did, but it's never going to be seamless.

Perhaps (and maybe the OP wants to consider it for their project ) incumbents acquiring the digital banks will be the way that new clean technology stacks are combined with the capital and the compliance capabilities that are needed to do retail banking at scale.

I can see what youmean about a fresh start, but in my experience, platforms designed from the ground up tend to omit things (see my earlier post). That said, banks each with 100s of years experience have royally !!!!ed things up in recent years

I was trying to resist contributing to this thread because I don't think the question is a fair one - it's not digital v traditional that matters, it's what do people need. And I don't think either model does that sufficiently yet.

But, on the side of trad banks, let me give you some examples of where digital would have problems - at least as currently set-up and based on my experiences over the last year or so.

Up until 18 months ago I had rarely visited a bank in 25 years - and would have argued branches were becoming superfluous. Little did I know.

When I had to act for an elderly parent under Power of Attorney I, and my siblings, had to go to branch and discuss how the PoA process works. And repeat this at other banks (who did it a different way). This would be very difficult to do without being face to face. And so needs a bank branch. Not a digital only bank. Complications inevitably arose as time went on - and again, visiting the branch was necessary and problems resolved quickly, with staff who knew what the processes were. I doubt an in-app messaging service would even begin to help.

Later, when the parental home was sold, the same issues applied, talking through the imminent arrival of a large sum of money was easier face to face in branch.

Later still, when a death occurred, face to face in branch was needed again. Staff knew what was involved, we didn't. Accounts were locked down to await probate, but visits to branch enabled funeral costs to be taken from the locked accounts. There's a lot of financial paperwork in death - I can't see that changing any time soon and hard copies are essential, not a scan with your phone.

That's just a simplified version of what we've gone through in branch - but I can't yet see any of the digital banks even beginning t cope with the situations described. Perhaps they can do some of it, but I bet not all and I'd also bet that it would be a tortuous process.

And we're all likely to need at least some of those services at some point, certainly the last one.

So, to answer your simplistic question, yes, for normal everyday stuff digital could replace trad banks. But for anything outside just paying bills, saving a bit, borrowing a bit etc I think you'll find trad banks still have a massive function. High Street Banks do a lot more than you think.

EssexExile wrote: »

I've had very different experiences at these times Zanderman. I don't use any "digital" banks but when dealing with "traditional" banks I have found in-branch staff to be pretty useless, but the bereavement teams & other specialist teams contacted by phone were always knowledgeable & helpful.

Moving large sums about online has never been a problem either.

Have to say I was surprised that branch staff were so helpful* - but this was mainly the problem-solving staff, not the tellers at the counter but the ones who sit in little open-plan cubicles to sort out problems. They may only exist in larger branches (but increasingly there are only larger branches, little ones close down) but that just reinforces the need for at least some branches, and not digital only.

It would be interesting to know if, yet, Starling, Monzo etc etc have such things as bereavement teams. Or what their process is for PoA. Or how they would sort out paying for funeral expenses out of a locked down account belonging to a dead person for whom probate is not yet granted.

Perhaps these are the sorts of things the OP should be looking at in their research. Because these are things banks need to do - and if digital is the future then digital needs to do these things.

I'm sure there are many other examples of occasional (i.e. not everyday) banking needs too - but I'll leave the OP to think about what those might be.

*Edited to add: though in hindsight they should know - PoA, death etc are all things that are inevitable - and so banks must be dealing with them all the time. Start-up digitals might not be, yet, as their clientele are likely to be younger, less likely to be about to lose their abilities or indeed life.