The final trend for 2016 is a significant development in the race to provide banking to consumers and small businesses in a new way.
During 2015 two new banking licences were issued in the UK to digital-only banks. These new entrants see themselves as banks for the 21st Century and their focus is engagement with clients electronically and delivery of real-time services that meet the needs of today’s customers. With mobile banking becoming increasingly popular Internet banking is now the main channel and branch banking is decreasing in usage. People are moving to electronic and always-open banks.
In addition to these new starters, established banks are spinning out parts of their operations under new brands, or in some cases revitalising old brand names These operations are now looking to differentiate themselves in the marketplace and build their appeal to the tech-savvy modern customers they want to attract. Banks in both of these categories will need access to the existing payments systems through existing providers, typically the main banks. These providers of what PaymentsUK terms “Indirect Access” have jointly developed and are voluntarily signing up to a new code of conduct to ensure that smaller providers are not disadvantaged. PaymentsUK has just concluded a consultation on this code of conduct which will indicate whether wholesale banking has opened up enough.
The Payment Systems Regulator is also conducting work on how banks access clearing systems, to ensure competition in the banking provider market and to ensure good outcomes for payment service users.
What can we expect in 2016?
Certainly there will be new campaigns asking us to move our bank relationships to new operators. We expect that many of the new providers will unveil innovative and simple interfaces to the services we demand but the acid test will be whether consumers decide to switch their accounts.
As well as giving people more choice as to who they bank with, it will also lead to banking specialisation. We will see some providers choosing to focus on single segments or sets of services and will look to buy in additional financial products from third-party suppliers when they have identified a demand from their customers. These providers may therefore offer white-label loans or investment services from other banks. This represents a significant change in the banking industry and the path new providers will have to take is by no means clearly defined or certain. By the end of the year I believe there will be at least one new bank experiencing significant success, however, given the amount of new ground which needs to be addressed, at least one may be merely staying afloat.
Finally, as mentioned as a previous trend for 2016, both new and old banks will be required to open up their services using new programmable interfaces to their banking systems. The Open Banking Working Group has issued an initial report with a target go-live of the end of 2016. This means that competition will also come next year from technology companies building on the existing banking infrastructure. With London being widely recognised as the capital of Financial Technology, or #FinTech, it is likely that many of these companies will launch services for the UK market. New banks must therefore look over their shoulders to the #FinTech companies who will be coming up swiftly behind them.
While it could be make or break for some new banks, there is certainly a danger that the traditional banking services will be commoditised and the higher-value, data-centric services will be the key to gaining new and retaining existing clients. To stay ahead, the more established banks will need to consider the range of products they provide, look to their key strengths and the depth of relationships they have formed with their customers.
 64% of current account holders in 2015 according to PaymentsUK