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  • FIRST POST
    • p12ttn
    • By p12ttn 6th Mar 19, 12:30 PM
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    p12ttn
    Could Digital Banks Replace Traditional Banks?
    • #1
    • 6th Mar 19, 12:30 PM
    Could Digital Banks Replace Traditional Banks? 6th Mar 19 at 12:30 PM
    Hi there, I'm a student studying in final year of university and was wondering if anyone could help me out.

    I am looking for responses about do you think a fully digital bank is the way forward even more than a traditional bank. This is for a research project that thinks about how we could make digital banking better and more competitive than it currently is. If there is anything you think should be improved or just general gripes about things banks get wrong.

    Also if you have any more complex complaints, pain points or ideas you'd like to see in a digital bank feel free to put it in the thread, I'd love to hear them!

    Thanks again!
    Nathan
    Last edited by p12ttn; 06-03-2019 at 12:34 PM.
Page 1
    • Ken68
    • By Ken68 6th Mar 19, 12:44 PM
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    Ken68
    • #2
    • 6th Mar 19, 12:44 PM
    • #2
    • 6th Mar 19, 12:44 PM
    There is no way, Nathan, that my old eyes will let me do banking on a mobile, though if Starling Monzo etc went over to conventional computer , then I will be quite willing to adapt.
    What does happen when digital users get old and forgetful, do they go back to pen and paper. So easy to press the wrong button.It worries me , can you mention this in your thesis.
    • p12ttn
    • By p12ttn 6th Mar 19, 12:50 PM
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    p12ttn
    • #3
    • 6th Mar 19, 12:50 PM
    • #3
    • 6th Mar 19, 12:50 PM
    There is no way, Nathan, that my old eyes will let me do banking on a mobile, though if Starling Monzo etc went over to conventional computer , then I will be quite willing to adapt.
    What does happen when digital users get old and forgetful, do they go back to pen and paper. So easy to press the wrong button.It worries me ,
    Hi Ken, yes this has been a problem that I have noticed crop up on a number of occasions and something that I think needs to have more consideration and thought rather than just considering one group of people that will use the app.

    The website idea is something worth looking into and it seems like most digital banks currently have overlooked this.
    • 18cc
    • By 18cc 6th Mar 19, 1:32 PM
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    18cc
    • #4
    • 6th Mar 19, 1:32 PM
    • #4
    • 6th Mar 19, 1:32 PM
    I think 'traditional' banks will go pretty much fully digital ie no branches. They will then be the same as what we currently call digital banks (eg Monzo, Starling).

    The difference is that you can access traditional banks via a laptop/PC as well as smartphone app, whereas currently the Monzos of this world are app only. This may very well, of course, change.

    The other difference is in the size of the customer service department for when things go wrong eg Barclays has more support than Monzo (I would think, and it may even out over time).
    • Ken68
    • By Ken68 6th Mar 19, 2:32 PM
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    Ken68
    • #5
    • 6th Mar 19, 2:32 PM
    • #5
    • 6th Mar 19, 2:32 PM
    There will have to be a backstop of some sort. Probably the good old Post Office .
    • Uxb1
    • By Uxb1 6th Mar 19, 3:05 PM
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    Uxb1
    • #6
    • 6th Mar 19, 3:05 PM
    • #6
    • 6th Mar 19, 3:05 PM
    Not to mention that one such new bank Revolut is having some "problems" at the moment.
    Recruitment and staff issues
    https://www.wired.co.uk/article/revolut-trade-unions-labour-fintech-politics-storonsky
    The small matter of the CFO resigning and allegations of lax money laundering policies
    https://www.finextra.com/newsarticle/33454/tales-from-the-dark-side-of-the-revolut-revolution-cfo-resigns
    • EachPenny
    • By EachPenny 6th Mar 19, 4:59 PM
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    EachPenny
    • #7
    • 6th Mar 19, 4:59 PM
    • #7
    • 6th Mar 19, 4:59 PM
    The other difference is in the size of the customer service department for when things go wrong eg Barclays has more support than Monzo (I would think, and it may even out over time).
    Originally posted by 18cc
    I think this is possibly one of the most important issues. The traditional model involves employing large numbers of humans who can try to help in times of crisis, which is valuable (as TSB discovered not so long ago). In extremis staff in branches could be redeployed to answer phones of the disaster planning has been done correctly.

    Digital-only banks relying on technology rather than people are vulnerable in this area. It will be interesting to see how the regulators react when one of the new model banks has a major IT foul-up affecting larger numbers of customers, and without the human resources necessary to deal with the fall-out.
    "In the future, everyone will be rich for 15 minutes"
    • londoninvestor
    • By londoninvestor 6th Mar 19, 6:28 PM
    • 1,335 Posts
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    londoninvestor
    • #8
    • 6th Mar 19, 6:28 PM
    • #8
    • 6th Mar 19, 6:28 PM
    I think 'traditional' banks will go pretty much fully digital ie no branches. They will then be the same as what we currently call digital banks (eg Monzo, Starling).

    The difference is that you can access traditional banks via a laptop/PC as well as smartphone app, whereas currently the Monzos of this world are app only. This may very well, of course, change.
    Originally posted by 18cc
    I think you're suggesting that Monzo et al will move towards something which is web-based rather than app-only. But interesting to think what would happen if things move in the other direction. If banks which are app-only become predominant, there might start to be competition concerns about the role of Apple and Google in the retail financial system - since you have to be a customer of one of them to use an app.
    • gt94sss2
    • By gt94sss2 6th Mar 19, 7:07 PM
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    gt94sss2
    • #9
    • 6th Mar 19, 7:07 PM
    • #9
    • 6th Mar 19, 7:07 PM
    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).
    • Thrugelmir
    • By Thrugelmir 6th Mar 19, 8:11 PM
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    Thrugelmir
    Someone will reinvent the bank branch. Not as we currently know it though. Disruptive technology has an impact. Often isn't the final answer though.
    “Risk comes from not knowing what you are doing. – Warren Buffett”
    • unrecordings
    • By unrecordings 6th Mar 19, 9:31 PM
    • 1,772 Posts
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    unrecordings
    Someone will reinvent the bank branch. Not as we currently know it though. Disruptive technology has an impact. Often isn't the final answer though.
    Originally posted by Thrugelmir
    As Waterstones did (or tried with the coffee shop concept, I suspect banks will evolve into a hybrid Wetherspoons/betting shop/bank concept (assuming there's no law against that)

    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
    • londoninvestor
    • By londoninvestor 6th Mar 19, 9:48 PM
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    londoninvestor
    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
    Originally posted by unrecordings
    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.
    • Thrugelmir
    • By Thrugelmir 6th Mar 19, 10:22 PM
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    Thrugelmir
    One key advantage the "digital banks" have is just the straight fact of starting from scratch and building new systems from the ground up.
    Originally posted by londoninvestor
    Banks require high levels of capital to grow profitability. Offering fancy apps may appeal to customers monitoring accounts but doesn't equate to selling of products and services. People will often prefer to do business face to face.

    Metro's offering seems to have hit sticky ground. Too old fashioned perhaps.
    “Risk comes from not knowing what you are doing. – Warren Buffett”
    • p12ttn
    • By p12ttn 7th Mar 19, 12:35 AM
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    p12ttn
    Thanks very much, folks, these are all really interesting points and are a huge help to the research into digital banks.

    One of the things I am aiming to focus on is how we can transform branches into something totally different, whether that be totally eliminating them or finding some other sort of physical alternative as call centres for more complicated or personal queries are not widely popular.

    The Telegraph published an article more than a year ago about image recognition for lodging cheques, which I think is a great idea but has never seemed to be widely adopted by any high street or digital banks, that I'm aware of.
    • unrecordings
    • By unrecordings 7th Mar 19, 9:53 AM
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    unrecordings
    I think you could view physical branches in the same way as post offices - they're a service hub, where transactions involving tangible objects are performed. In that sense, then maybe regulations could be introduced for a minimum number of branches - maybe affecting a bank's FSA/FCA rating. Or maybe there could be a business rates incentive (of course the post office would cry foul over that...) In terms of call centres, the growing adoption of online chat facilities only accessible once logged in is a good alternative - although to be effective the chat needs to be disability friendly, use real humans, not time out after 20 seconds, and provide a transcript
    • unrecordings
    • By unrecordings 7th Mar 19, 9:59 AM
    • 1,772 Posts
    • 6,938 Thanks
    unrecordings
    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.
    Originally posted by londoninvestor
    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
    • gt94sss2
    • By gt94sss2 7th Mar 19, 1:42 PM
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    gt94sss2
    The Telegraph published an article more than a year ago about image recognition for lodging cheques, which I think is a great idea but has never seemed to be widely adopted by any high street or digital banks, that I'm aware of.
    Originally posted by p12ttn
    HSBC, Lloyds, Halifax and Barclays have this functionality in their apps (perhaps others)
    • Zanderman
    • By Zanderman 7th Mar 19, 3:01 PM
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    Zanderman
    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
    • By EssexExile 7th Mar 19, 4:12 PM
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    EssexExile
    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.
    Tall, dark & handsome. Well two out of three ain't bad.
    • Zanderman
    • By Zanderman 7th Mar 19, 7:25 PM
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    Zanderman
    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.
    Originally posted by EssexExile
    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.
    Last edited by Zanderman; 07-03-2019 at 7:30 PM.
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