Multi-banking: convenience or chaos?
Since the dot-com boom, I have heard people saying that the end of banks is nigh.
The direction of travel is clear – we are all going to be increasingly “multi-banked”
After the dot-com bubble burst, they said that mobile banking will kill the banks, but that view subsided as banks launched their own mobile services.
With the arrival of open banking and the launch of many new digital banks, we again began to hear that the demise of traditional banks is coming. However, as of now, I don’t know of any traditional bank that has closed because their customers went off to digital providers.
It’s difficult to find exact numbers of how many products a customer has with their bank, let alone the number of financial institutions they have to deal with. The picture is complex, so I am actually not surprised these numbers aren’t readily available.
However, what is surprising is that although we have more new banks, the rates of attrition from incumbent banks are low.
Neobanks Monzo, Starling and Revolut have 20 million users between them in the UK. Of course, there will be overlapping customers that have accounts with two or even all three. However, at the end of last year, the top three banks that gained customers from switching accounts were Nationwide, Barclays and Lloyds. And the number one reason given as to why they switched was for better online/mobile banking, according to Pay.UK.
Since 2013, there have been over 10 million current account switches in the UK, yet we are not seeing meaningful declines in these “legacy” banks that have not been born out of the digital era – banks that are running old systems and aren’t designed to be API based or cloud first.
Whether you call it “silent attrition” or call it what it is, multi-banking, customers are choosing to have more relationships with more banks rather than close off existing relationships and fully move to another provider. Most financial providers average less than three products per customer. The drivers behind this are pretty clear:
- Online/mobile – These services have become the norm and users are happy to open new accounts with providers for a better experience.
- Open banking – This has enabled non-financial providers to provide valuable services or simply better financial experiences.
- Regulators – Increased support and flexibility to get banking licences has helped drive more competition.
- Digitisation – Modern technology allows newer banks to be far more cost effective as well as competitive.
- Investment – Fintech investment has spawned thousands of new companies offering alternatives for almost every financial service – often called the unbundling of banking.
More recently, the growth of Banking-as-a-Service (BaaS) is making it far easier, cheaper and faster to launch new services for customers than ever before. Over time, services based on BaaS will become increasingly focused on niche customer segments, allowing companies to serve very specific needs. Leveraging the licences of BaaS providers, consumer brands are also offering “embedded finance”. Such offerings not only create new value for customers, they also provide the brands with greater customer loyalty, intelligence and increased share of wallet.
The direction of travel is clear – we are all going to be increasingly “multi-banked”. However, I am sure that I am not the only one that is wondering whether this is a good thing. I have counted over 20 different organisations I currently have to deal with for accounts, loans, mortgages, credit cards, insurance, investments, BNPL and so on. And I am sure I have relationships with providers I am totally unaware of.
Like the promise of easier management of all our accounts in one place with open banking, will open finance come to the rescue? With delays in the UK’s Pension Dashboard (a single platform to see all our pensions), what hope is there for open finance?
Instead, will we see digital wallets save the day? After all, they are increasingly becoming the place we store not only our cards, but our loyalty schemes and tickets for events and travel. Or will we all just succumb to super-apps?
This week, I’m just saying that while we are on the road to being increasingly multi-banked, we don’t really know where this road ends up, and that is a little worrying to say the least. I would love to hear your thoughts on this.
About the author
Dharmesh Mistry has been in banking for more than 30 years both in senior positions at Tier 1 banks and as a serial entrepreneur. He has been at the forefront of banking technology and innovation, from the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions. All opinions are his own – feel free to debate and comment below!
He founded proptech start-up AskHomey (sold to a private investor in spring 2023) and is an investor and mentor in proptech and fintech. He also co-hosts the Demystify Podcast.
Follow Dharmesh on X @dharmeshmistry and LinkedIn.
Read all his “I’m just saying” musings here.
“The number 1 reason why they switched was for mobile banking”? Probably because they’re too embarrassed to say it was the £200 bribe.
Most incumbent bank mobile sites are fine (from experience), perhaps apart from Co-op. It’s frequency of outage that makes a difference (& the “inducement”).