The City of London is home to one of the biggest fintech ecosystems outside of the US; it’s created two of the world’s biggest challenger banks in Monzo and Revolut and when international money transfer platform Wise debuted on the LSE in 2021, it was the largest ever-listing of a tech company in London.
With the rise of digital innovation in the financial sector, business customers today expect their banks to provide the same experience they enjoy on apps or from the likes of Google, Apple or Amazon – a service which is fast, cheap, reliable and easy to use. They no longer accept waiting weeks and going through multiple manual steps to open a business bank account, paying high fees for simple payments or waiting until 9am the next morning for the phone lines to open to receive support. They demand tools and services beyond what traditional banks can often provide - real-time insights into cash balances, seamless payments, inexpensive foreign currency transfers, digital invoicing and even tax preparation, all in an easy-to-use, mobile-first interface.
But London’s biggest banks and financial services companies, as they currently stand, simply aren’t set up to respond to the needs of modern business owners. One reason is that most traditional banks are built on legacy infrastructure, from 20, 30 or even 50 years ago, which is clunky and inflexible. That makes sharing data across these archaic architectures time-consuming and costly to maintain, slowing down processes and frustrating customers. These systems make it difficult for institutions to innovate and even where they have embarked on digital transformation, the pace is simply not matching the market’s rising expectations.
It's no wonder then that British fintech Tide now serves over 650,000 contractors, freelancers and scaling businesses, representing 10% of the total SME market. A survey of 1,000 SMEs last year found that 82% said they would change their payments or banking solution provider if their existing SaaS platform or marketplace offered a like-for-like alternative - indicating their willingness to shift critical functions, if better service is offered elsewhere. Legacy banks offer trust and loyalty as core growth drivers, but younger business customers want a more personalised and customised banking experience.
The opportunity for collaboration
There is a huge opportunity for traditional banks to level up when it comes to modernising their systems. As stalwarts of our economy, they’re not, and shouldn’t be going anywhere soon and they also have healthy budgets to invest in innovation. They still have an advantage over upstart challenger banks and fintechs in that there are still areas where they provide more value to business customers - offering deposit securities that fintechs often can’t, as well as more comprehensive lending and financial products - providing they commit to this digital transformation.
Rather than calling time on Britain’s traditional banks, the City has an incredible opportunity ahead - to work with London’s leading fintechs. UK fintech is on track to beat last year's funding figures, with 80% of 2023’s total raised so far in 2024, whilst companies including GoCardless, Starling Bank and TrueLayer have gone from strength to strength. Legacy banks collaborating with this increasingly powerful group could really supercharge London’s fintech leadership.
Startups and fintechs are keen to collaborate with banks and larger enterprises not least because banks have large, established customer bases and can provide credibility to startups. Banks can also provide value for fintech customers from treasury management to deep institutional knowledge.
What’s stopping greater collaboration? Too often it is long sales cycles and roadblocks around software implementation which deter startups from working with banks. Overcome these and software innovation can extend the shelf life of and modernise banks’ legacy systems.
For the banks that achieve this, the rewards can be significant. And if they do this well, the entire ecosystem will benefit and ensure Britain’s financial leadership.
Ultimately, the financial system is not a zero-sum game. We need both a thriving banking system that is fit for modern businesses, as well as innovative fintechs that provide alternative platforms to co-exist. That way banks can deliver better services to the customer.
