The big banks are waking up to the brave new world

On Monday, Europe’s largest bank HSBC reported worse than expected profits as it braces itself for a “bumpier” ride amid slowing economic growth in China.

On Thursday, Lloyds Banking Group, which owns the Halifax, is expected to reveal hefty mis-selling charges.

Analysts predict the bank will stomach a £2bn charge for PPI mis-selling in the fourth quarter.

Meanwhile, RBS has already confirmed that it will post its eighth year of annual losses when it announces results on Friday.

The results come at a time when a number of new banks are about to appear in the UK that won’t have branches. Instead they will have the latest mobile apps.

John Kirkbright, a former senior Halifax Bank executive who now runs strategic consulting company K-Strat International, said: “We are talking about names like Atom, Fidor, Starling and Mondo. If you have not heard of them you may soon do so as they get their initial marketing and promotion strategies in to gear.”

Analysts believe there could be as many as 15 of these new banks appearing in the next year.

“It‘s all part of the big shake-up taking place in UK retail banking partly because customer needs are changing quickly and they need a new type of service,” said Mr Kirkbright.

“But also because the Govern-ment is keen to encourage new banks to challenge our main big four banks who control nearly 80 per cent of the personal banking market.”

So far the Government’s attempts to open up the market and get customers to switch to new banks has not worked well. So will this second wave of new entrants fare any better?

“Well the regulators are certainly trying to make it easier to get a banking licence with slightly less stringent requirements than a couple of years ago, but it’s still a challenging task to get millions rather than thousands of customers to switch from the traditional bank they have been used to,” said Mr Kirkbright.

“If you talk to the management of these new banks they all see themselves as disrupters to the market and see a strong possibility that at least one of them could expand and become similar in scale and magnitude to a Facebook or Google.“

The likelihood of this cannot be ruled out, but it looks unlikely.

Firstly, the traditional banks are waking up to the pace at which banking is changing. Recent announcements by HSBC and the Halifax about new ways to access mobile and online banking without the need for passwords indicate the threat they perceive from new entrants.

“We are likely to see a lot more of these types of development with banks rushing to introduce new digital processes and take advantage of low cost, new technology that is becoming available,” said Mr Kirkbright.

Secondly, expansion from a few thousand accounts to millions will require very careful management and a seismic change in attitude by the UK banking public.

“Banking is just not exciting enough for us to get enthused about using a new bank,” said Mr Kirkbright. “It took my wife 30 years to move her account and then she did so to take advantage of attractive interest rates at a traditional bank. For the Generation Y customers it might be different but it’s unlikely to happen as quickly as the often quoted Uber impact in the taxi business.”

The rapid digitisation of banks is being likened with what happened with the introduction of the internet.

“This is not a time for CEOs to sit on the fence and wait to see what happens. Those with the best digital strategy, but above all the ability to manage transition in a customer focused way, will undoubtedly be the winners,” said Mr Kirkbright.

More choice and more customer friendly ways of doing business has to be good news for customers, but retail banking faces a difficult few years before the new winners emerge.