Digital banking sounds super-cool. You can manage your money entirely on a smartphone and, if you choose a new challenger, stick it to the big banks at the same time.
There is one big problem - where do you pay in cash? Atom Bank's boss thinks shared hubs like the Post Office could be the answer.
With 11,500 sites around the country it will give Atom a wider high street reach than any of the big banks’ branch networks alone. Lloyds Banking Group is the biggest, with 2,200 sites.
Using this Post Office springboard might sound obvious, so why have the big banks got any branches at all?
“The reason the one-stop shop became the model in banking is that it was difficult for consumers to move from one to another. Now, technology is breaking down those barriers,” says Mark Mullen, Atom’s chief executive.
Branches do have advantages for banks, as they are a huge high street advert, and they present a range of options for cross-selling products.
Similarly, customers might be happy to transact online, but many still like seeing staff face-to-face to discuss really big moments like getting a mortgage.
Witness Metro Bank’s high-profile launch – backed at the time by Atom chairman Anthony Thomson – which focused on branches, alongside online banking. But branches are expensive, so lenders are finding ways to run a leaner operation.
For instance Nationwide customers can go into a branch, pick up a cup of tea and sit down in front of a TV screen for a long-distance discussion with a mortgage adviser, complete with the in-branch paperwork.
In keeping with those developments, the idea of a digital-only bank is increasingly widely accepted. First Direct – which again used to be run by Mullen – runs as an online and internet-only bank. But it uses parent group HSBC for cash and cheques.
The cheque problem will soon be solved by mobile imaging, where users take a snap of the cheque on their smartphone and pay it in via an app.
And Mullen is certain ATMs and the Post Office plug the cash gap – which he says will bring big cost savings, too.
“I genuinely believe the cost models in banking are highly inefficient. For years, we’ve been hearing profitability is a derivative of scale. If that is the case, why are most big banks are struggling to get their cost-income ratios down to anywhere near 50-50?” says the Durham-based CEO.
His plan to share sites could be seen as something akin to the Carphone Warehouse model, applied to banking.
The big mobile phone networks have their own high-street shops, but the Carphone Warehouse has far more stores, offering a services on each network, across a range of handsets.
“Why would we spend money on branches up and down the country when they all do the same thing?” asks Mullen. “The big banks’ fallback position is, don’t be the last branch to close in any town, and if you are, tell people to use the Post Office. They’re already saying, use a common utility.”
The Post Office is understood to be working on a basic service level agreement with the banking sector, to make it easier for challenger banks to plug straight into its services.
Mullen sees a future where banking is more like insurance, where customers largely use price comparison sites, or mortgages where borrowers increasingly go to brokers rather than applying directly to big brands.
If this model gives a series of challengers a truly national reach at a low cost, if could just inject the competition customers have been looking for.