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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