Collision Course: the competition for talent between traditional banking and FinTech - Odgers Berndtson
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Collision Course: the competition for talent between traditional banking and FinTech
The last number of years have been characterised
by immense digitisation within the financial services
sphere. The banking sector, in particular, has seen
an explosion of fintech start-ups attempting to
disrupt the traditional model of banking.
This paper will examine the dawn of these new ‘neobanks’, how this model is set for a collision
course with the current banking establishment and the implications for talent leadership.
The Rise of the Neobanks 2. Branch Closures
In 2014, a new direct banking model emerged in Europe Another area in which the established participants
(Dawkins, 2020). FinTech start-ups including: Revolut, have moved closer towards the neobanks has been
N26, Monzo and Starling Bank began offering current of attitudes to physical bank branches. In parallel with
accounts to customers exclusively through digital channels digital transformation, the traditional Irish banks have
(Ballard, 2018). These branchless fintech offerings have since announced major reductions to their branch networks
come to be known as ‘neobanks’, and now boast savings going forward, moving closer to the branchless model
accounts, debit cards, peer-to-peer payment platforms and of the neobanks.
a host of personal financial management tools (BBVA, 2016).
In late 2020, Allied Irish Banks (AIB), in recognition of
These neobanks offer customers significantly lower fees,
the trend towards digital banking, announced plans
with many services available free of charge, and innovative
to close and merge a significant portion of its physical
digital platforms offering an enhanced customer experience
branches, aiming to reduce its staff numbers by 1500
over the more traditional participants in the banking sector
by 2023 (Healy, 2021). Another major blow was dealt
(Truust, 2021). With this in mind, the neobanks appear
to branch banking when Bank of Ireland, alongside
to have found an edge, acquiring significant market share
publishing its annual report in March 2021, announced
across their product offerings. Revolut, for example, now
it was to close 103 of its branches across the island
boasts over one million customers within Ireland
of Ireland, reducing its physical footprint by 33% (Bank
(O’Brien, 2020).
of Ireland, 2020). In doing this, Gavin Kelly, CEO of Retail
Convergence Practices of the Traditional Establishment Banking, acknowledged that branch banking is falling
To coincide with the rise of the neobanks, the already out of vogue, saying the Bank “had seen a 25% reduction
established traditional banks appear to have steered course in branch usage between 2017 and 2020, before the
towards the direction of these new entrants. This trend has pandemic, and this has accelerated over the past year
manifested in a number of areas: to a 50% reduction” (RTE.ie, 2021). Moreover,
Permanent TSB, despite committing to maintain its
1. Digital Transformation
76-strong branch network, has begun to withdraw
In response to the recent digital trend epitomised by
cash and foreign exchange services from these, in
the neobanks, the traditional banks in Ireland have
favour of a more “digital experience” (Reddan, 2021).
increasingly focussed on their digital offerings in the
last number of years (BearingPoint, 2020). These developments, paired with the impending branch
closures to presumably follow from the exits of Ulster
Bank of Ireland, for example, embarked on its €1.4 billion
Bank and KBC from the Irish market (Brennan 2021),
‘Project Omega’ digital transformation project in 2016
strongly suggest that the existing model of branch
to completely overhaul its technology systems (Taylor,
banking is not likely to survive.
2019). The Bank clearly recognises the consumer trend
towards digital offerings, with CEO Francesca McDonagh 3. Synch Payments
writing that “in 2019, 6 out of 10 customers will look Perhaps the most conspicuous emulation of the
to buy a day-to-day banking product online, that went neobanks by the establishment to date has been the
up to 7 out of 10 in 2020. We’re expecting that to go development of Synch Payments. Earlier this year, it
to 8 out of 10 in 2021” (McDonagh, 2021). Despite this, was reported that AIB, Bank of Ireland, Permanent
Bank of Ireland still appears to lie in the wake of the TSB and KBC Bank had jointly invested €5.9 million
neobanks in the digital sphere, only recently allowing to develop the new peer-to-peer digital payments
customers to open current accounts online using a ‘selfie’ application to rival the neobanks’ platforms.
(McDonagh, 2021), an innovation pioneered by the Commentators have seen this as an attempt to take
newer entities. aim at the likes of Revolut and N26 (Brennan, 2021).
Converging Practices of the Neobanks of these neobanks are largely unable to participate
Whilst the traditional banks have now clearly charted a in perhaps the most fundamental aspect of banking
path towards the future of fintech, the neobanks have - lending (Weeks, 2021). This inability to lend is
been unable to escape a route of convergence towards the particularly detrimental to the neobanks in the current
practices of the established banks in a number of key areas: climate of negative interest rates, with the start-ups
struggling to cover the costs of holding customers’
1. Fees
money with their current fee structures (Weeks, 2021).
A key advantage held by the neobanks in the battle
for market share has been of significantly lower fees Revolut has found itself unable to lend in most of
in contrast to their traditional counterparts (Truust, Europe due to its status with national regulators,
2021). Most of the establishment banks in Ireland having not yet obtained a banking license in Ireland
charge customers a fee for maintaining a current (Taylor, 2020) or the UK (Weeks, 2021), for example.
account (CCPC, 2021), whilst this position is generally Moreover, it appears that efforts to satisfy national
not shared by the neobanks, with fee structures more regulators have been somewhat strained. In late 2018,
closely resembling a ‘freemium’ model, charging the Neobank was granted a banking license in
instead for subscription-based ancillary services Lithuania, where it now offers loan products (Weeks,
(van Oost, 2020). However, an emerging trend of 2021), and envisaged expanding this across Europe
increasing fees across the neobanks has given rise within 18 months (West, 2018). To date, little progress
to doubts as to whether this model can survive over appears to have been made in this regard and there
the longer-term. have even been calls for Lithuania to revoke the license
granted to Revolut amidst concerns over links to the
Revolut, for example, announced in February an
Russian Government (Short, 2019), spelling trouble for
increase in fees affecting its 1.2 million Irish customers
the Neobank’s interaction European regulators.
for ATM withdrawals and cross border and SWIFT
Another regulatory issue appears to have been
transfers (Weston, 2021). Moreover, in light of negative
encountered by Starling Bank in Ireland, having
European Central Bank rates, Starling Bank has
resumed talks with the Central Bank of Ireland to
introduced a fee of 0.5% on euro-currency accounts
secure a banking license since August 2020 after
with balances in excess of €50,000 (Thomas, 2020).
discussions having been “put on ice during lockdown”,
Negative rates going forward may spell trouble for the
according to CEO Anne Boden (Taylor, 2020).
‘freemium’ model employed by the neobanks and
accelerate the ostensible shift towards a more The ability of the neobanks to satisfy regulators across
traditional fee structure. Europe, therefore, appears to be a critical hurdle to
entering the lending market and achieving profitability
2. Lending
and long-term sustainability within the banking sector.
Whilst the neobanks have acquired substantial
market share across Europe, profitability for these
growth-stage start-ups has remained an issue. Whilst
premium subscription offerings have been developed
to abate this, the neobanks are still suffering
immensely, with N26, as an example, losing €110
million in 2020 (Browne, 2021). Due to their regulatory
status and difficulties obtaining banking licenses, most
Emerging Issues Collision Course for Talent Leadership
On one hand, amidst the backdrop of serious profitability Over the last number of years, the traditional establishment
issues, it has become clear that the neobanks will need and the neobanks have been hurtling ever closer towards
to start meaningfully lending and may also be forced to one another, with both species increasingly engaging in each
revise their current fee structures in order to survive over other’s practices. Moreover, it has now become abundantly
the longer-term. The barrier of the fintech start-ups’ clear that both of these categories could stand to benefit
ostensible disharmony with regulators across Europe tremendously from consolidation, with the strengths of
appears to be further compounded by a struggle to each poised to remedy their respective weaknesses,
attain adequate capability within the functions of risk particularly in terms of balancing talent deficits and
and compliance. The new entrants have found difficulty strengths of both sides.
in meeting acceptable standards of know-your-customer
From the perspective of the neobanks, the current
(KYC) and anti-money laundering (AML) procedures
establishment’s knowledge, scale and experience in the
(Duncan, 2020) and in addition, the Bank of England’s
functions of risk, regulation and compliance would prove
Prudential Regulation Authority has recently highlighted
invaluable as an aid to achieving the robustness required
risk management and controls as areas where growing
for authorisation and obtaining a banking license. This in
banks are expected to invest in considerably post-
turn would pave the way for the neobanks to begin lending,
authorisation (Prudential Regulation Authority, 2020).
leading to profitability and a sustainable future for these
Neobanks clearly need to attract market leading risk
entities. Turning to the traditional banks, there exists an
and compliance professionals who typically populate
immense opportunity to benefit from the neobanks’
traditional banks but their assimilation into a completely
established technology platforms, innovative acumen,
different business and cultural model is a significant
popular branding and attractiveness of work environment
challenge. In addition, the value these professionals
to their future career development and prospects.
bring will need to be fully embraced and understood in
order to optimise the value they bring. For these reasons, it is submitted that the two, as-yet
distinct categories of financial institution, now find
On the other hand, it has become apparent that the
themselves on a collision course for talent. This collision
traditional banks in Ireland have fallen behind the curve
course may in fact be mutually beneficial and enhance the
with respect to their digital offerings, trends against branch-
attraction and development of capabilities and talent to
banking and peer-to-peer payments. It would appear that
levels beyond which both current models allow. In truth,
the establishment is doomed to consistently trail behind
those working in traditional banks need agility to adjust
the innovations of the neobanks, leaving little inspiration
to the neobank environment and culture while those in
for investors and consumers alike. The established Irish
neobanks also need to demonstrate an ability to adjust
banks are in increasing need of assistance regarding the
to the disciplines and rigour of traditional banks.
expectations of the 21st Century banking customer.
The talent challenge for traditional banks starts with With this being the case, it follows that future mergers
their attractiveness for technology savvy, action oriented, and acquisitions (M&A) within the banking sector are highly
professionals. Working with organisations encumbered likely to follow the pattern of traditional banks acquiring
by a plenitude of legacy issues, including systems, neobanks, and vice versa. Indeed, this trend has already
does not typically whet the appetite of these begun: in Australia, National Australia Bank agreed to acquire
talented individuals. neobank 86 400 in January (Madni, 2021) and in Europe,
Orange Bank acquired French neobank Anytime during the
same month (Finextra Research, 2021). As well as these, in
late 2020 it was reported that banking titans Lloyds and
JP Morgan Chase had expressed an interest in acquiring
Starling Bank (Griffiths, 2020).The Attraction and Blending of Talent in Banking With the distinction between neobank and traditional bank growing ever harder to draw, the broader banking sector is set for substantial consolidation over the next number of years. Although M&A activity is poised to escalate dramatically across Europe, challenges still lie ahead for the harmonious integration of the two species. Homogenous consolidation within each category of bank, a more unified regulatory framework within Europe and solutions to the challenges brought about by Brexit may first be required before this occurs. Despite this, it has become clear that the fundamental bases have been set irrevocably in motion. In the spirit of this impending convergence, both traditional banks and neobanks alike will need to equip themselves with the necessary talent in order to thrive in a sector set for such a seismic shift. The new entrants will seek expertise in the areas of risk, regulation and compliance whilst the traditional establishment will welcome in technologists, product experts and marketers from the fintech sphere. In addition, both models will require an increasing number of cybersecurity professionals, as “crime will always follow the money“ (Glass, 2019). Moreover, the desire for fresh talent is not limited to retail banking. With leaders in wholesale banking recognising digital skills as those most desired going forward in the 2020 report on the State of Wholesale Banking from Odgers Berndtson The report further found that the wholesale banking sector is already looking towards partnering with innovative fintechs (Miller et al., 2020). Merged traditional and neobanks have the potential to attract and fuse talent not only from within financial services but importantly, from other sectors. This in turn can bring greater diversity of thought and more robust but agile business models. A broader and deeper talent pool with visionary leadership will enhance culture and customer centricity with greater alignment to the demands of regulators and today’s technological, environmental, social and governance expectations. Odgers Berndtson stands ready to assist firms affected in this regard. Our Global Banking Practice works with retail, corporate and investment banks around the world. Our deep industry and sector knowledge means we understand our clients’ strategic imperatives and how these impact on the senior leadership talent they need to attract and retain. We forge deep relationships with our clients to ensure we understand their specific business goals and cultural dynamics, maximising our ability to identify and engage the best industry or cross-industry talent. Strong relationships with other Odgers Berndtson Partners in the United Kingdom, Europe, Asia Pacific, North America, Middle East and South Africa delivers a seamless regional and global execution of searches, assessments and appointments.
Author
Kian is a Research Consultant at Odgers Berndtson and works to place candidates
across the Financial Services, Professional Services, Technology and Sports Practice areas.
He joined Odgers Berndtson in 2018 and was promoted to his current role in 2020.
Kian has also previously worked for the firm in their New York Office on secondment.
Kian has delivered for clients across a broad range of industries, including: Banking,
Insurance, Asset & Wealth Management, FinTech, Legal Services, Sport, Construction,
Agriculture, Charities & Non-profits, Property and the Public Sector.
Kian Ringwood
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