It’s no surprise to tell you that the banking sector has undergone some fundamental changes over the past 20 years. A road that started with the arrival of online banking has led to a fintech revolution that’s transformed how consumers think about and manage their finances.
For traditional banks, staying relevant in the face of new digital competitors starting with the remodeling of branches to include technology and services that appeal to different customer groups. The rise of online has challenged the assumption that we need bank branches on every street corner and consumer demand for safe, secure and convenient banking, mixed with the capabilities of modern smartphones, have pushed banks towards rolling out their own apps and digital services. However, we still haven’t got to the point where we completely ignore bank branches and do all our banking online. And although competition across the financial ecosystem is significantly increasing, large financial institutions are not in retreat. In fact, interestingly, some digital players have been making the move to become more like traditional banks in an attempt to please more customers.
According to a report from the Wall Street Journal, PayPal will be launching traditional banking services later this year – including debit cards, loans and partnerships with small US banks to deliver them. The aim is to give those excluded from the banking system access to the digital economy, driven by the necessity of owning a bank account in order to participate in the modern economy because “if you don’t have a bank account, you can’t take an Uber ride or book a room on AirBnB”. PayPal is trying to make such services available to all, regardless of whether they have a bank account or not. To add to this, the fintech also recently acquired iZettle – a Swedish start-up that sells mobile credit card readers and other payment platforms. This step is set to allow PayPal to bring its online platform to 11 new countries and expand its offline offerings in the US, UK and Australia.
On top of this, Apple has also announced that it’s preparing to release a credit card in partnership with investment bank Goldman Sachs. The new credit card would use the Apple Pay branding and is expected to launch in early 2019, while Goldman Sachs will also offer in-store loans to Apple customers. This move by Apple means that the humble payment card still has a long future, but new actors in the industry would have to learn from the traditional players if they want to succeed in the competitive financial services market.
This is an interesting move, considering that a recent study by RFi Group suggested that digital-only banks are losing their appeal. According to the research, global appetite for digital-only providers fell from 74% in the first half of 2017 to 63% in the second half. Appetite for a digital-only main bank has also dropped, from 50% to 44%. While traditional banks may have been pleased to see those statistics, PayPal and Apple’s move into physical banking services shows that the disruption to the sector from digital entrants is only set to deepen, and competition for customers will remain intense.
Despite the perceived decline in interest for digital only banks, the sector continues to grow, with services like Monzo and Revolut rapidly gaining popularity and attracting major funding. For all banks – whether a traditional one or a digital startup – it shows the importance of being able to adapt to the customer needs and put them at the heart of their operations. Right now, a combination between the trust and reassurance of a traditional bank, and the convenience and innovation of digital services seems to be consumers’ most preferred approach. PayPal’s latest move shows that it understands this.
So, with digital entrants into the banking sector set to continue, and traditional banks fighting back, PayPal’s launch of physical services may be a sign of things to come. What do you think? Let us know in the comments below or by tweeting to us @Gemalto.