Lloyds Bank announced a new series of job losses and branch closures earlier this week, continuing the trend for the high street brands to march towards a digital service model. The question on some lips though is how will their increasingly digitally enabled operation withstand the onset of the new retail banks currently applying for licenses, tech startups from Silicon Valley or indeed those closer to home on Silicon Roundabout?

The restructuring of Lloyds’ operating model is driven by, but lags behind, the change in the behaviours of their customers who, across all segments, are increasingly turning to their computers and mobiles rather than their local branch. Recent data suggests that visits to banks are dropping at double figure rates annually, while mobile adoption is ramping up even faster.

So clearly the battle is moving from the high street to online, and while the banks are improving their offer and shifting their customers to be digitally active, their competitive market is changing faster than ever.

This increasing change in the competitive market is driven by several factors. The first is a regulator trying to increase competition in the marketplace which few can argue is a bad thing.

The result is that 25 banking licenses have been applied for in the last year alone. Many of these are foreign banks looking to open a small operation, but some are startups looking to launch digital only propositions – one of which is Atom Bank founded by Anthony Thomson, co-founder of Metro Bank.


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Thomson, who earlier this week embarked on a fundraising round, has the luxury of designing his organisation from scratch. Given that these digitally native banks don’t carry the cost of a branch network, their cost: income ratio is as low as 30% as suggested by Thomson at a recent conference – a level that existing players can only dream about.

The easing of regulation is not the only way that the barrier to entry has been lowered, the availability of software-as-a-service banking platforms has also meant that it’s easier than ever to get up and running. But these retail banking startups, who all seem to be led by former banking execs, aren’t the only ambitious new entrants eyeing up the opportunity.

The other shift in the market driving an increase in the pace of change is the arrival of a different type of competitor – VC backed technology start-ups who often have a very different type of leader at the helm.

The barrier to entry for financial services is higher than other sectors that startups have previously disrupted such as media and telco. But the rapidly falling cost of technology, next to zero cost of distribution (for example through app stores) and a sector and customer experience that seems outdated to digital natives creates tremendous opportunity for these ambitious entrepreneurs.

OpenCo 2014 - Adaptive LabMarc Andreessen, one of Silicon Valley’s highest profile VCs, recently wrote on Bloomberg that he thinks startups can “reinvent” the entire financial services industry.

Andreessen has quite a pedigree so his attention is telling. Currently his venture capital firm Andreessen Horowitz, can be seen backing disruptive businesses like Airbnb (recently valued at $13bn – greater than some of the hotel chains it competes against), and Buzzfeed (valued at $850m – greater than many of the old media groups its surging passed).

More recently though he’s been starting to make investments in financial services related startups. Earnest offers personal loans but based on its own scoring model that uses social data instead of FICO scores. Coinbase, another investment made by the firm, is exploring an area that has the potential to have a more fundamental impact on the sector – crypto-currencies.

It’s not just in Silicon Valley that a slew of businesses (all of which look very different from financial companies of old) are cropping up though. In our own Silicon Roundabout area (Tech City / Old Street) there is a huge buzz around fintech.

TransferWise, Azimo and Currency Cloud are all looking at takes on the international remittance market. All have raised a minimum of $10m and seem to be growing at quite a clip, whilst is a company taking aim at the wealth management space and recently broke into the top 25 in the UK.

These businesses are just the start though with several financial services incubators popping up in the past couple of years. These organisations offer mentoring, office space and direct capital.

So with a lower barrier to entry, huge market opportunity, customers that expect more and more from their service providers and plentiful access to capital, the path is clearly paved for more ambitious entrepreneurs to enter the market.

These younger, nimble businesses are more customer centric, have leaner governance structures with an average employee that is more likely to wear toms shoes than ties, and are digital at their core putting them at a huge advantage. They don’t have the distractions of staff layoffs, branch closures, growing consumer distrust which allows them to focus on improving their offer and grow their slice of the pie.

The restructuring positions Lloyds well to make an increased investment in digital channels with a leaner operating profile. But the question stands of whether they’re able to focus and are set to move fast enough to deliver this change not only now, but on a continued basis because, as those that work in technology know only too well, the treadmill only gets faster.

Added note on James Haycock:

James Haycock is the founder and MD of Adaptive Lab, an innovation agency that partners with ambitious entrepreneurs to help them compete, innovate and grow in a landscape experiencing ever increasing change. Their approach draws from design thinking, lean startup and modern software development practices to solve problems through design.


  1. Hi Tim,

    Many thanks for taking the time to leave a comment. I think you’re absolutely right – a lot of the attention is on consumer offers but as you say there is a huge opportunity in the business space too. You only have to have a quick look at the experience of business banking and credit cards to realise that it’s some years behind consumer let alone the exciting tech startups.

    There is a growing amount of interest in b2b though as well. Lending in particular is very interesting. The crowdfunding model is gaining momentum allowing small businesses an alternate route to bank loans. Likewise there are a number of other cashflow products. The ones that seem to be growing quickest are PayPal working capital and square capital which are targeted at merchants. In the UK there seems to be a couple of businesses doing sme loans using account data (through integrations with freeagent, xero etc) to profile and offer loans too. Speaking of those online accounting players, they’re in an interesting position as they offer a lot of value to the smes (more so than the banks websites in my opinion) so might be interesting to see whether any of them could evolve into a bank if they were to take advantage of the easing of regulation around new bank startups.

    So in short, it’s starting to happen but just hasn’t received the same press coverage and funding activity as the b2c space has from what I’ve seen.

    Hope that’s useful.


  2. i whole heartedly agree with the comments and observations articulated above, but I believe the real challenge is how B2B Financial Services and Banking gets disrupted; digitally or otherwise. Traditionally it has always been the follower to C2C and B2C and has its own unique challenges.

    Do you have any insights into or observations on his and when the B2B FS tipping point will occur? For me that is the watershed moment for digital disruption in UK SME markets.


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