That is the stark conclusion of a new study, the Future of Finance, conducted by business consultancy Ctrl-Shift and Callcredit, which interviewed leading figures from traditional banks, challenger banks and the wider industry.
While it has been widely reported that banks have under-used their own customer data for years, due to their legacy systems, it has been claimed that more digital competitors will be able to easily use the data to target the most profitable parts of a bank. In a worst-case scenario, this will leave banks saddled only with unprofitable products, like current accounts.
However, the study suggests that open banking will see at least one major technology company – namely Google, Amazon, Facebook or Apple – enter the banking market. The research argues that these companies will look to either acquire a challenger bank, such as Monzo or Starling, or provide payment solution services.
The report also suggests that Chinese companies, including the likes of Alibaba, Tencent and Baidu, will look to enter British retail banking, as they already provide payment services in China.
Callcredit chief executive Mike Gordon said: “Open banking is an important development for the industry, it will bring greater competition and new ideas to banking. This means that traditional banks are likely to create exciting products to retain and grow their customer base. Yes, it could pose a risk to banks’ operating models, but I believe that they will use open banking to innovate and grow.”
Ctrl-Shift CEO Liz Brandt added: “Banks have a real challenge on their hands. Open banking is an imminent threat, which banks will struggle to respond to due to their large, cumbersome structures. To survive, banks will need to think and act fast.
“I believe that we will see some clever solutions, such as the creation of ‘lifeboat’ banks. This is an approach Midland took years ago when it set up First Direct.”