Every industry has its Uber moment – the point when a new wave of technology-led challengers begin to change the game.
And according to financial services giant Citibank, that moment has arrived for the banking industry in Europe and North America. In a new report entitled Digital Disruption – Citigroup puts traditional banks on notice that fintech companies are targeting the most profitable product areas and markets. So much so, that Citigroup believes the industry has reached a tipping point.
As Citibank sees it, the problem for banks is that at least 50% of bank revenues are generated by consumer and small business banking and these are the very segments of the market that are being targeted by emergent fintech players. In the UK, this phenomenon can not only be observed in the arrival of digital banks (and account services) such as Atom, Monzo and Loot, but also payment companies, such as Transferwise, and platform lenders. And as the report points out, it is companies like these that scooping up the lion’s share of equity investment.
Citibank says investment in fintech in Europe and North America has risen from $0.5bn in 2011 to just under $20bn today. That is reflected in the UK, where fintech companies attracted £1.34bn in investment last year, with Atom, Funding Circle, Monzo and Transferwise among the recipients.
Citibank says fintech players have made most progress in the business to consumer end of the market, where customers – and particularly the so-called Generation Z and millennials – have proved themselves willing to try out new services that offer cheaper banking or value-added services. By 2020, Citigroup is predicting that fintech challengers will take 17% of revenues generated by consumer banking, compared with around 5.0% today. But business banking has also seen considerable disruption, not least from peer-to-peer lending and private debt platforms.
The Business to Consumer Market
As things stand, the greatest progress is being made in the business to consumer market. Citigroup says that as a direct consequence of changes in consumer habits. Smartphones have fuelled demand for banking services that can be accessed at all times and while major banks have responded by creating their own apps, challengers are winning consumers by taking a different approach to service. Adding value is the name of the game.