Fintech services such as Monzo and Starling are growing in popularity, but established banks are quickly catching up.
Hackney is a hive of fintech activity. Monzo and Starling, two popular fintech banks, have their headquarters in the borough. Fintech banks have been embraced by the smartphone generation. Their rise has been simultaneous with an exponential growth in the popularity of online banking among 16-24-year-olds.
According to statistics from the ONS, in 2015, just over half of 16-24-year olds managed their money online, in comparison with around three quarters of 25-34-year olds. In 2019, that figure had risen from just over half, to 91 per cent. But while they have proved a popular form of short-term banking, fintech banks still have a lot of ground to cover in encouraging young customers to trust them with their finances in the long term.
The UK accounts for 11 percent of the global fintech industry and in 2019, fintech contributed £6 billion to the UK economy. The sector has recently been a target for development from the Treasury.
A report commissioned by the Chancellor, Rishi Sunak, and put together by the former head of World Pay, Ron Kalifa, last week set out a “five-pronged strategy for a ‘big bang’ in the fintech sector”. Among the recommendations were new policies such as “a new visa Stream” which would see tech talent from across the globe encouraged to relocate to the UK post-Brexit to work on fintech development and “a digital finance package” to deal with the emerging, and sometimes patchy regulation of the sector.
The apps are so easy to use and the fact that you can request money from people who owe it to you or easily find someone just by using their phone number is great
On a day-to-day level, the popularity of fintech banks such as Monzo and Starling is particularly tied to their usability. Customers have been drawn in by their slick user interfaces, attractive graphics and simplicity of access. For Charlie Biggs-Thomas, 23, a PR executive, the simplicity of his Monzo account has been its biggest selling point. “I like the efficiency in response times when something goes wrong” he said, “the apps are so easy to use and the fact that you can request money from people who owe it to you or easily find someone just by using their phone number is great.”
Similarly, for journalist Phoebe Davis, 24, Monzo’s ease of access was particularly attractive. “I get a notification when money comes in and out of my bank account, that’s how I keep track of things”, she explains, “if it tells me, you’ve spent £22 today, that’s good to know if I’m trying to save.”
But while Phoebe and Charlie are both drawn in by the ease of access which banking with a fintech firm allows them, neither of them identifies their Monzo account as a viable option for long-term savings. It is in this area that fintech proves less of a competitor to retail banks than in their popularity as current accounts.
In the UK, if you speak to normal people, there still is a question mark in their minds, [fintech companies] need to build that trust
Chip, a start-up based in Camden, attempted to fill this gap by creating an app that helps its users save money for long-term use. Alex Latham, the co-founder of Chip said , “we just want people to focus on savings. We want the app to be a longer-term home for users’ non-spending income.Currently, 40 percent of Chip’s user base is aged between 18-30. During the Covid-19 pandemic, they’ve seen users under 30 saving 156 percent more than they were previously. In January 2021, Chip users aged between 18-24 saved on average, £225.
For Alex, building up trust with new users is the biggest challenge facing Chip and the UK fintech sector as a whole. “In the UK, if you speak to normal people, there still is a question mark in their minds,” explains Alex, “[fintech companies] need to build that trust.” Alex knows that developing a reputation will take time, but he remains confident.
Yet, with established banks catching up with exciting developments in technology, the question lingers as to whether the popularity of fintech is simply a phase. According to a report by the World Bank, “despite the rapid expansion of fintech companies, so far, the level of disruption seems to have been low.” The report also highlights that “the relationship between global banks and fintech firms has been mostly complementary, with incumbent firms pouring investment into the fintech sector.” This is something which Phoebe has noticed first-hand. “Banks like Monzo have pushed other platforms to meet them with digital,” she said, “now my Lloyds account is a lot better, I get a notification when money comes in and out of my bank account.”
Although fintech is proving popular with young people in the short term, in the long-term, it will have to catch up with the reliability of established banks in order to make a splash. With the government firmly committed to improving and developing the UK fintech sector, we will begin to see established banks moving towards more digitised forms.
