Challenger Banks See Declining Number of App Downloads, as Consumers Go to Incumbents for their Stability, Familiarity, Fintech Exec Explains

Ian Bradbury, CTO for Financial Services, Fujitsu UK, has surprisingly claimed that the COVID-19 outbreak has “changed very little” when it comes to the Fintech and the larger financial sector, in general.

He argues that the financial industry’s digital and systemic transformation had already begun, well before the pandemic began. He notes that the declining use of physical cash, and the shift from physical business locations to digital platforms was already taking place before the deadly virus had spread across the globe.

He points out that there was already a steady increase in the number of AI or Robo-advisors and chatbots.

Bradbury, like many other Fintech industry professionals, says that the Coronavirus crisis has simply accelerated the shift towards all-digital financial services.

He notes that physical money is now being “phased out rapidly.” The number of cash withdrawals from ATMs had declined by around 60% in the UK only a month after the pandemic began. About 54% of UK consumers said they were avoiding the use of cash to prevent the spread of the virus, Bradbury noted. More people were conducting contactless payments, he confirmed.

Although the Coronavirus led to a sharp increase in contactless payments, cards had already overtaken cash transactions back in 2018 and by the beginning of 2019, the United Kingdom was ranked among the countries with the least number of cash transactions. Notably, the UK was ranked in third place, trailing only Sweden and Canada, where people have moved almost completely away from cash.

According to Bradbury:

“For traditional banks, COVID-19 is likely to have both positive and negative effects. On the one hand, at a time of uncertainty and recession, customers want stability and familiarity. This is something that the long-established, traditional banks can offer – given that 77% of Britons still only bank with them.”

He noted that major challenger banks have experienced a drop in the number of app downloads, following the Coronavirus outbreak.

As reported recently, an analysis of data by Jefferies indicates that “digital engagement” has moved back into the realm of large incumbent banks during the Coronavirus pandemic. Jefferies’ report states that “installation rates and customer engagement are foundering at digital-only banks.” This is due, in part, to the pricing power traditional banks may have over emerging neobanks.

Jefferies notes that they have long been skeptical regarding the digital-only thesis. Reflecting on the UK banking market just over a year ago, and Jefferies said there was a trend toward digital bank utilization – albeit at a less engaged level. Today, Jefferies claims a reversal in these trends.

Jefferies covers multiple traditional banks like NatWest, Barclay’s, and Lloyds Bank. Currently, Jefferies has a buy rating on all of them.

Few, if any, of the leading digital banks are generating any net income as most are focused solely on growing accounts and expanding geographies. Revolut has said that it anticipates profitability at some point in 2020 – COVID could slow that down.

As reported on July 30, 2020, losses at UK based digital bank Monzo continue to mount. The digital challenger is said to have generated £113.8 million in losses versus year prior losses of £47.1 million.

Monzo has around 4.4 million users – jumping over 2.3 million in the past year but this growth may slow in 2020 with only 1 million new customers expected to be added.

It was reported in June that Monzo raised £60 million in new funding at a significant decrease in valuation – reportedly a 40% haircut during a tough economic environment.

Bradbury predicts:

“In the longer-term, as the customer experience turns digital, challenger banks could well find themselves in a position of strength. As digital natives, they are well placed to offer the most intuitive and compelling online engagement.”

He confidently asserts in his Op-Ed, published by Fintech Magazine:

“I have no doubt that the changes we are seeing are permanent, and that the COVID-19 ‘new normal’ represents a point-of-no-return for the financial services sector.”

He concludes that instead of being viewed as a transformative event, the COVID-19 crisis should be thought of as more of a milestone in “a much longer journey.” He argues that the Coronavirus and resulting economic uncertainty has “removed any digital resistance from both the organizations and their customers.”

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