The digital bank revolution is over – and that’s a good thing
Until it was finally unveiled last month, there was more than a year of will-they-won’t-they speculation in the press over whether Britain’s biggest digital bank, Revolut, would be awarded a banking licence by the UK’s financial regulators.
It was a long, drawn-out process – far longer than for most of Revolut’s peers – thanks in no small part to Revolut’s huge size relative to other neobanks alongside whom it had grown up over the past decade.
But amid all the industry swirl over Revolut, a deeper current was being overlooked. As Morning Wire reported earlier this month, since the beginning of last year there has not been a single application for a banking licence in the UK, the longest lull since the financial crash.
Year after year, Britain has spawned neobank after neobank, building up the biggest fintech ecosystem in Europe – a true UK success story. But now, no more. Why?
The bear case is that fintech innovation is dying. Entrepreneurialism is shifting elsewhere, in an economy that has become known for its sluggishness, with higher taxes, stagnant wages and brutal costs.
But the glass half-full take is that Britain has become a victim of its own success. So many great banks have sprung up after thin air over the past 15 years – The Revoluts, the Monzos, the Starlings and the Zopas – there simply isn’t room for any more: the market is saturated.
End of an era
Which take is on the money? Probably a bit of both, according to Jaidev Janardana, chief executive of Zopa.
“When the wave of new applications started, there hadn’t been a new bank in forever,” he told me this week.
“A lot of the banks that were born around that time have had good success, are continuing to grow. There is probably a bit of recognition that those new banks are doing well, and it is probably better to support scaling them up, rather than continuing to add new banks. And that’s where I think [we are now].
“[The investor focus] has gone from how do we help give birth to new banks, which we know how to do, to how do we actually help scale up new banks?
“And I think that’s probably a good growing up.”
So there you have it. The digital bank revolution is over. Here’s to a good growing up.