The end of Lloyds Banking Group?
Lloyds Banking Group started business in 1765 as Taylors and Lloyds based out of Birmingham and so is now 259 years old. It is one of the 8,000 businesses in the UK that are over 250 years old, and these businesses provide 39% of the jobs in the UK!
If banking were a race, it would be an ultramarathon
The banking group has over 25 million customers and a market capitalisation of £35.7 billion as of October 2024. Its stated mission is “to help Britain prosper”: it is committed to supporting individuals and businesses, contributing to economic growth, and making a positive impact on society.
Whilst often referred to as a “legacy” or “incumbent” bank, it has 22 million active mobile banking customers – that’s approximately one third of the UK population and over half the UK adults. This means it has more digital users than the sum of all the UK “challenger” banks such as Monzo, Starling, Atom, Tandem, and Revolut.
The group has a number of brands including Lloyds Bank; banking brands Halifax and Bank of Scotland; life insurance and pensions company Scottish Widows; consumer credit cards, loans, savings, and home insurance brand MBNA; and Schroders Personal Wealth (a joint venture with asset management heavyweight Schroders); and it is has acquired many others throughout its history. Whilst greatly reduced, it still has over 500 mobile and high street branches.
In stark contrast, neobank Revolut started in 2015 and only got its UK banking licence July 2024. It has over ten million customers in the UK, over 45 million globally, and continues to grow. Revolut’s latest valuation (as of August 2024, following the secondary share sale) by private investors is £35.8 billion ($45 billion). With this, Revolut claims to be “the most valuable private technology company in Europe”.
Its stated mission is “for every person and business to do all things money – spending, saving, investing, borrowing, managing, and more – in just a few taps”. Revolut currently operates in 35 countries, while Lloyds is predominantly UK-focused. Revolut has a broad range of payment and fintech products, while Lloyds provides a full range of traditional financial services across banking, insurance, and investments.
Revolut has raised over $2 billion in funding over 13 rounds. In its 2023 accounts Revolut declared total assets of £17 billion. Lloyds has over £881 billion in assets, according to its 2023 accounts.
There are vast differences between the two and strengths and weaknesses in each business model. Yet many digital strategists and fintech influencers overtime have called the end in sight for incumbent banks like Lloyds. I, too, thought traditional banks might struggle with the emergence of internet banks in the late 1990s. However, Lloyds was one that responded with its own attempt, Evolve Bank, and competed with the challengers like Egg, IF, and Smile. Evolve Bank then underpinned Goldfish Bank, launched by international energy and services company Centrica in 2000. This was arguably an early implementation of Banking-as-a-Service (BaaS), although other incumbent banks had already done the same for supermarkets earlier.
Some would say that Lloyds’ vastly superior balance sheet is “old school thinking” but I don’t think the world has changed so much that having assets is not an advantage.
Lloyds’ cost-to-income ratio is just under 55%, whilst some digital players claim to be around 30%, so there is a view the latter are considerably more efficient thanks to better technology and lower operational costs. However, most of these digital banking players lack the breadth of financial services and products that incumbents, such as Lloyds, offer. Once digital players broaden their propositions and if they scale their customers, their costs will inevitably rise and leave less of a difference.
Some influencers have argued that customer experience alone would be the demise of incumbents and customers sought “convenience”. Lloyds has over 350 people working on customer experience across the group, vastly more than digital banks individually have. In fact, the bank has focused on experience since the early 1990s when it had its first “usability lab” to test Windows 2.0 programmes launched into branches. I had the pleasure of watching branch staff trying to use a mouse for the very first time from behind a one-way mirrored wall. Four screens showing live video feeds of the user’s hands, their face, the PC monitor, one on the whole set-up.
This week, I’m just saying that there must be a good reason why banks have survived wars, technology changes, and economic disasters. Many have overcome their own failings, most recently in 2007/8, with the support of the government granted.
Whilst not everyone values a branch or a call centre, many do. Many, too, continue to have their prime account with an incumbent bank rather than with a younger digital rival.
I can’t speak for all incumbents, but I do believe Lloyds Banking Group will be around a long time to come because of its ability to focus on customer needs whilst managing talent internally. Banking is not a sprint race or even a race, but if it were it would be more like an ultramarathon. And from experience, in an ultramarathon it’s better to be slow and steady like the tortoise than the excitable quick hare.
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.
