Entrants ‘still lack firepower to match old guard’
THE BOSS of an up-and-coming challenger bank has said that the sector is some way off from having the firepower to sufficiently challenge the mainstream banking sector and called for the establishment of a meaningful investment fund to support fintech start-ups.
Alex Letts, chief executive of U Account in Sheffield, said while challenger banks were far better placed to make important incremental changes to their business models than their established banking counterparts, the sector did not have the capital to get across what he called the “chasm” that lay between challenger and mainstream banks.
Speaking at a fintech summit in Leeds, Mr Letts also questioned whether the challenger banks were radically different from mainstream banking, positing that some had simply “put new clothes on the emperor”.
Mr Letts, who launched U Account last year and now has nearly 50,000 customers, said: “There is no question in my mind that evolution, revolution, every incremental change for the established incumbent banks is increasingly more difficult. And this is because they have a 300-year-old business model.
“On other the other side are what I call the ‘neobanks’, people coming in with much hurrah and hysteria and telling everyone that the big banks are finished and that they are going to take over the world .
“I can absolutely tell you they are not.
“But what I can say is that incremental change for them is very easy and simple. They have beautiful digital footprints, the support of regulators and in many cases some very bright people running them and a modern attitude.
“What is happening for these neobanks is that they will hit the chasm and in that time they are going to use an awful lot of capital. It is not clear to me that they necessarily have the capital to do cross that chasm.
“I do believe in their skills and that they can offer a brighter fresher future for banking but I don’t believe they have done anything truly disruptive. I do not believe that they have done anything more than put new clothes on the emperor.”
Mr Letts added that above all he felt greater funding was needed to help entrepreneurs in the sector get started.
“If you set up a fund, from Government, that invested in fintechs and you had a billion pound fund where do you think businesses will come to? It is very simple.
“It needs someone with the bottle and guts to stand up and say we are going to put together, not a £100m northern tech fund which does 50p here and 50p there, you need a proper fund setup here and the business and entrepreneurs will come.”
Later in the debate the Northern Powerhouse Partnership director Henri Murison said that the nature of fintech was that it could evolve without the geographical constraints seen between the North’s cities, allowing it throw off some of the inhibitors seen in other sectors.
“Because Fintech is not developed yet it is not constrained by the same reality of that sets cities like Leeds and Manchester up against each other. We have the same potential uses for the same potential investors and that is hugely useful in terms of collaboration.”
Dan Rajkumar, chief executive of Leeds-based rebuildingsociety. com, said that attitudes around fintech presented huge opportunities for the sector’s potential.
“Most of us will have shopped on ebay, or taken an Uber instead of a cab, or stayed at an AirBnB instead of a hotel.
“And it is not until you use these services that you start to benefit from the economies of distance mediation by removing them and saving money.
“The opportunities that exist in peer-to-peer lending and Fintech appear to be growing rapidly.”
ALEX LETTS: ‘I don’t believe they have done anything truly disruptive.’