There’s no denying. The big High Street banks we know and love / hate are getting attacked from all corners.

Regulation is squeezing all the profit out of retail banking. Consumer trust has fallen to an all-time low and the government is encouraging a raft of “challenger” banks to come through and take chunks out the market share of the big four (Lloyds/Bank Of Scotland, RBS/NatWest, Barclays, HSBC).

And to add insult to injury, these High Street stalwarts are seeing their business being eroded by fintech startups, aggressive and well-funded geeks out to antagonise the big banks.

These fast-paced organisations are challenging norms in payments, credit, foreign exchange, transaction management, money management and beyond, bringing the consumer and the small business genuinely useful, engaging and often entertaining alternatives to the services offered by their incumbent bank.

Does the future of finance look like a dozen different apps from a dozen different providers, each offering their own slick “Uber-like” experience for whatever service is required?

Will we be abandoning our long-held current and business accounts and building our own bank-in-my-pocket from these varied (and often open) services?

Right now, that really does not seem likely. In fact, if current trends are anything to go by, you could argue the big banks don’t have too much to worry about:

  • People just aren’t switching current accounts. According to the CMA, just 3% of customers switched in 2014 that’s in spite of new Current Account Switching Service making life a little easier for switchers.
  • Although trust in banks is at an all-time low (financial services is the least trusted industry after media), trust in upstarts in the financial space is even lower. Ever since the Kaupthings, INGs and so on burnt out in the crash, our thirst to explore new, quirky and interesting financial brands has been seriously burnt.
  • Most people tend to rely on a small core of apps and, beyond games, it’s rare for consumers to add a plethora of disparate apps to their phone.

So, big banks are fine and can rest on their well-feathered laurels? These upstarts are but an itch?

Read on to find out, or for more on this topic read:

Not so fast!

You see, all this unbundling of banking into standalone products and services (as the startups are mostly touting) has already been done… by the big banks.

In the process of centralising all the products and services that branches used to handle more manually, they then spun-off or devolved these products into standalone teams (sometimes standalone businesses).

Think of RBS and its standalone credit card division, its Lombard car finance division and so on.

How many banking apps let you see and manage all the products you own from a single screen (or any screen)?

This happens because big banks very often have autonomous teams running autonomous systems that are not joined up – a lot like the fintech startups.

The only thing stopping consumers from getting these services from elsewhere is the little trust they have left in them and their ability to do things at scale.

The only thing preventing the big banks stopping the startups from invading their space is their ability to be agile, smart and contemporary. They are slow, cumbersome and weighed down in legacy systems, compliance and committees.

Fintech startups have no such problems, typically being fail-fast, caffeine-fuelled teams of tech risk takers not afraid of breaking the rules. Imagine using some of those terms in a UK bank boardroom?

What do we do?

Banks have the resources and the customers to make something meaningful but are often suffocated by their own scale.

Startups have the agility, the brains and the appetite to do cool things but have a real problem of trust and reach to overcome to make their efforts meaningful.

There’s three basic things they can do. Beat them, join them or buy them out.

Beating them is an expensive game which starts with tearing out those legacy systems – all green screens, mainframes and other pre-web technologies. That’s easy – banks can afford it.

Tearing out the curmudgeonly processes and the suffocating attitude to risk and failure is a much harder job. It really is not an overnight switch to make a bank act like a startup.

In fact, post-crash, banks’ attitude to risk is even more conservative than ever and any bank seeming to play fast and loose is often shamed in the popular press. Perhaps not…

Working with these businesses and integrating their services seems like a far easier task. Why not just modernise your merchant services by using Square? Or give your consumers better money management by plugging in MoneyDashboard?

This approach of finding the best-in-class then adding it to your portfolio definitely has an appeal. You get others to take the risks, push the boundaries, break the rules and then you plug their product in when the dust has settled. Great!

Fidor Bank in Germany does this well, integrating crowdfunding platforms as an alternative lending platform into their business banking portfolio.

However, unless you completely de-brand and subsume these services into your product portfolio you’re still educating your customers about the existence of these third-party services, instantly creating potential product disloyalty.

Secondly, you’re also adding another layer of user disconnect as it’s likely all these patched-in services offer different user experiences and disparate functionality. Needs some thought.

Finally, if you have a competitor nibbling at your heels or someone who does something that makes you green with envy, you just do what Google and Microsoft have done for years. Gobble them up and make them your own.

This is probably one of the strongest areas of opportunity for both the startup and the big bank. After all, the startup is typically VC funded and, if they can get a good price for their venture, they will sell.

All the bank has to do is integrate, cut off the competition and give their customers something their competitors will struggle to quickly emulate.

And, if they’re smart, they’ll retain the teams of these startups and use them to bring a more entrepreneurial character to their business and ensure that future acquisitions of this nature are more seamlessly joined up and work well together. This could definitely work.

At the end of the day, the consumer will decide. We’re adopting new tech and new methodologies faster than ever. The millennial is breaking every rule in marketing, product development and sales ever written. Perhaps none of these proposed futures will bear out. The one truth is that everything will continue to change.

What’s your money on?

Note: This article was amended on 25/11/15 based on feedback from BACS that the numbers sourced on switching rates from the CASS were inaccurate.

BACS state that “…data shows that, in the whole of 2011, 963,881 current accounts were switched. In the first 10 months of 2015, that number stood at 1,031,955 (with two months still to go).”  

This conflicted with numbers presented in a This Is Money article which suggested that the numbers had been in decline.