There are plenty of defining years in the history books, and as 2020 draws to a close, it’s almost certain that the global pandemic will ensure that this year is featured prominently. With events cancelled, launches delayed, and country-wide lockdowns, the way we work has changed forever. Still, for financial technology and surrounding industries, this was also a year of challenge and opportunity.
This December, The Fintech Times is asking industry leaders for their ‘View from the Top’ to gain an insight into the decisions behind the last 12-months. Today, we’re looking at the issue of Challenger banks, hearing from Helen Bierton, Andy Mielczarek, Dmitry Gusev and Charles McManus on their 2020 thoughts, plus a look ahead to 2021. Will there be a Happy New Year? Read on…
Challenger banks are generally defined as small, relatively new banks with the aim of directly competing (or challenging) the traditional highstreet banks. As a result, they are often incredibly innovative and will usually operate in a digital capacity – online only or through an app for example. The pandemic has seen a huge surge in onboarding for these kinds of banks as customers have needed a new way of achieving their financial services needs. In this View from the Top, companies Starling Bank, Chetwood Financial, Sovcombank and ClearBank outline their own 2020 experience.
Helen Bierton is the Chief Banking Officer at Starling Bank, overseeing Starling’s personal and business bank accounts and marketing. Prior to Starling, she spent 24 years in banking, and in her opinion, the use of technology in the financial industry has been a key trend this year
“2020 has been a difficult year for everyone, and while the world continues to grapple with the impacts of the pandemic, one of the many things that has shone through has been the power of technology and how it has truly been a lifeline for many.
“At Starling, we’re extremely proud of some of the ways that we’ve been able to use our tech to support people. In May, we became accredited under the Bounce Back Loan Scheme, which we did alongside providing support via the Coronavirus Business Interruption Loan Scheme (CBILS). Both schemes have been integral to supporting thousands of businesses during a challenging time and it’s been a privilege to have played a part. So far, we’ve been able to loan over £1.4 billion to our business customers through these schemes.
“To provide support for some of our more vulnerable customers, we decided to accelerate the roll-out of our Connected Card, a second card that customers can connect to their existing account and give to anyone they trust to pay for groceries and other essential items on their behalf. Our cheque imaging tool also enabled customers to continue banking at home which was vital as many banks closed over lockdown.
“2020 has definitely been a transformational year for Starling. With nearly 1.8 million accounts and over £1.4 billion in lending, we were pleased to recently announce that we’re the first digital challenger bank to break even!
“In 2021, we’ll continue to focus on growing as a profitable and sustainable bank, and on developing products, including paid-for products, and money management tools that give our retail and small business customers the best banking experience.”
For Andy Mielczarek, CEO of North Wales based Digital Bank Chetwood Financial, the increase in digital banking is one of the key features of the year.
“It’s a cliché to say that 2020 has been unprecedented. Looking ahead, however, we believe that the fintech industry will continue to see positive impacts on the back of Covid into 2021. For example, the uptick in customers moving to digital banking as a result of branch closures and restrictions posed by the pandemic is a positive trend for many fintechs, as it increases the size of their target market dramatically.
“In addition, as high street banks pulled back from the digital lending market during the first lockdown, we saw more and more customers move to newer fintechs who continued to offer them access to credit. This represents a shift in behaviour which we expect will continue into 2021, presenting a real opportunity for product diversification and disruption for lenders.
“We’ve also seen many businesses looking for new revenue streams to protect themselves from the impact of events such as Covid. As a result, we’re expecting to see increased interest in companies like Chetwood that also provide Banking as a Service (BaaS) or white label opportunities, as a way of adding new revenue streams to an existing business model. There are already plenty of use cases for this – from travel agents to professional bodies – and we expect to see more.”
Dmitry Gusev is the CEO of Sovcombank, one of Russia’s largest privately-owned banks. Like the others, he thinks the transition to digital has been significant this year, particularly in mortgage lending.
“In addition to giving rise to an e-commerce boom and a surge in online transactions, 2020 brought an increase in mortgage lending. All of these trends were ongoing at the start of the year and were then accelerated as much of the global population stayed home to prevent further spread of Covid-19. Mortgage lending took a hit early in the year as the pandemic emerged, but the sector has proven resilient and benefited from government-subsidised rates aiming to ensure the industry’s strength, both as a provider of jobs and as an entity that is interconnected to other sectors. Sovcombank proactively built loan-loss provisions to increase our resilience capacity, resulting in a higher margin of safety when compared to the Russian financial crisis in 2014.
“The determining factors in how well firms navigated the volatility of the past year are infrastructure and agility. Banks with an established infrastructure supported by modern technology were better prepared not just to mitigate any disruption caused by Covid-19, but to capitalise on the resulting surge in retail investment. In parallel, firms had to be dynamic and flexible to simultaneously address challenges and seize opportunities.
“In 2021, the financial and technology industries will take stock, scrutinising their performance in 2020 to determine areas of strength and weakness. Firms will then apply that information to their strategies, whether that involves updating infrastructure, prioritising agility, or expanding strong mortgage and payments functions to ensure they are prepared to embrace any future opportunities that the coming year may bring.”
Charles McManus is CEO of ClearBank, the UK’s first clearing bank in more than 250 years. In his opinion, Brexit and Open Banking are going to have the biggest impact on fintech in 2021.
“The strength of the UK’s fintech sector not only attracts investment, creating jobs and wealth, but makes the UK more resilient, now serving millions of customers. In 2020, that scale coupled with scandals and the pandemic revealed gaps in governance and compliance that threaten the sector’s reputation. As fintech comes of age in 2021, the industry and its regulators must work together, so regulation can move at the speed of technology and fortify not just fintech’s future but UK plc’s too. This is going to play out in two key areas.
“The first is Brexit. The exit creates a complex environment for banks and fintechs, especially the loss of passporting rights and question marks over equivalence. Thankfully, we have seen the FCA step in with regards EIDAS certificates, moving quickly to permit UK-based TPPs to use an alternative to eIDAS certificates to access customer account information.
“The second is Open Banking. Open Banking adoption accelerated in 2020 driven by Covid-19, as consumers and businesses consolidated accounts to better understand their financial options during a recession. But Open Banking still isn’t driving the innovation it was built for.
“I expect to see Open Banking providers partner with payment gateways to drive account-based
payments outside card scheme networks. This will generate rich data, unlocking a universe of new
use cases to help Open Banking finally deliver on its promise.
“As we approach 2021, industry and regulators need to work closely together around Brexit and Open
Banking to fortify the future of fintech.”