The UK direct banking market to explode in 2014/15

The UK will see its direct banking players more than double in the next two years as the first of a new wave of direct banks arrive. So far this year we have had announcements from Anthony Thompson of Metro Bank fame that he is to found a direct bank, known as Atom. Fidor's Matthias Kröner has confirmed that Fidor will roll out in the UK, and Anne Boden is seeking investments for her own direct bank to operate around Europe, writes Billy Bambrough

The UK will see its direct banking players more than double in the next two years as the first of a new wave of direct banks arrive. So far this year we have had announcements from Anthony Thompson of Metro Bank fame that he is to found a direct bank, known as Atom. Fidor’s Matthias Kröner has confirmed that Fidor will roll out in the UK, and Anne Boden is seeking investments for her own direct bank to operate around Europe, writes Billy Bambrough

Combined with offerings from Barclays in the form of Barclays Direct (previously ING Direct), and HSBC’s First Direct this influx is set to put real pressure on a section of the industry that has previously had very little success.

As neither HSBC’s First Direct or Barclays Direct report their earnings separately its is nigh on impossible to say whether the business are a financial success. We can clearly see that on customer service First Direct is doing very well but on financial metrics the direct banks are a closed book.

Historically we know what the UK has not been a good market for direct banks. Egg was sold off, as was ING Direct’s UK operation. But the world has changed considerably since these cases.

Today much of banking happens online and on mobile, although oddly the millennials that are generally regarded as leading the digital charge are proving a tough market for First Direct to crack.

Speaking at a recent event, Metro founder Thompson candidly told the audience that if he were to launch Metro today it would be with a focus on digital and that is precisely what he appears to be doing.

Whether we’ll see the same cookie cutter, US inspired approach for the online bank as for the branch focused Metro is another matter (maybe Atom will declare a love for cats to mirror Metro’s obsession with dogs).

German based Fidor will be arriving on British shores this year, with its approach echoing that of community based teleco GiffGaff, relying on crowd sourcing for advice and solutions to everyday problems. Fidor has been well received in Germany with the charismatic CEO Mattias Kröner confident the bank will do just as well in the UK.

Anne Boden, who previously served as COO at Allied Irish Bank, is currently seeking investment for direct bank start-up which will eventually operate around Europe. The bank has to start somewhere though and given Boden’s previous experience the UK or Ireland are good bets.

While being a digital bank is not all that different from being a traditional bank, you take deposits and dish out loans, the strategy needs an entirely new way of thinking. Some things to bear in mind:

  • Involve the customer. When you order a pizza online you can track every stage of the process, from when it goes in the oven to when it’s loaded for delivery. Keep the customer updated by email make the process as transparent as possible. Let customers comment on everything on the page;
  • Make use of the data you have. Don’t be creepy but show people what they want to see. Customers are open to being shown relevant offers and products;
  • Be available. Whether that’s on the phone, over email or on web chat. You’re saving a fortune on branches so spend a little more to make sure you’re offering good customer service. Digital banking customers will always need some form of human interaction at some point. When they do need it make sure they don’t regret it. They’re more likely to flame you on Twitter if you do, and
  • Digital banking customers can compare prices easily. Don’t try and hide them from them, do self comparing and offer them the best deal