Revolution or evolution is the question that a Starling Bank Report: Predictions and challenges for UK fintech in 2017 puts forward. Starling Bank founded in 2014 as a challenger bank concludes that UK fintechs fail to deliver disruption and innovation but rather end up helping incumbent banks to fend off competition.

London is commonly seen as the most advanced global hub for fintech. As a consequence of the severe Global Financial Crisis in the UK, the Big Five British banks lost all credibility in the public eye and their laid-off bankers were forced to look for new opportunities. Many joined Level39 at Canary Wharf in London, Europe’s largest technology accelerator for fintechs and started their own businesses.

In an attempt to support more innovation and competition, the Bank of England revealed a simplified two-step process with lower capital requirements for setting up new banks in 2013. The following year the then Chancellor George Osborne announced the government trade body Innovate Finance starting a wave of challenger banks and the Financial Conduct Authority launched a Regulatory Sandbox and a New BankStart-up Unit.

These efforts bore fruit. In September 2015 Fidor Bank launched in the UK. November 2015, Atom Bank and Tandem Bank obtained their bank licences. In August 2016 Monzo Bank followed. Starling Bank and many others are at different stages of the bank licence application process. German digital bank N26 announced its expansion into the UK.

In the year 2016, Atom Bank became the first app-based all-digital bank in the UK offering residential mortgages, fixed saver accounts and SME lending product.  By comparison, in 2015 Tyro became the first and only Australian app-based all-digital bank launching a business bank account followed by unsecured cash flow-based lending.

Despite all the hype, starting a bank is hard in the UK, mission impossible in Australia. While the British licensing process is supposed to take six months it actually takes roughly two and a half years. New digital banks that go for disruption need to spend the time and investment to develop their own deep technology stack. Other use a digital front end and third party provided back-ends.

Starling Bank criticizes that in the rush to win investors, the need to develop skill and expertise that impacts the customer has lost priority between 2013 and 2016. Without the game changing customer value proposition, highly personalised service, the brand and customer trust, fintech firms struggle to become real self-sustaining businesses once the investment life-support is withdrawn.

The result is that switching rates have remained far too low to have any meaningful effect on the competition. The report claims that moreover, hundreds of fintech start-ups aiming to revolutionise banking and finance have now fallen under the control of UK’s biggest banks through acquisitions and investments. Because of this it seems that rather than increasing competition, the fintech industry so far has been helping the banks fend off competition.

At Tyro be believe that we need to stay course and compete head on with the Australian Big Four. Only a real disruptor will provide the Australian SME community with frictionless banking and working capital funding – cloud-based, totally mobile and integrated.  We encourage Australian fintech companies to become Tyros who rather compete with the banks, rather disrupt than help the Veterans to fend off competition.