The Services Family – a new UK bank aimed at armed forces members – shows how digital provision can help banks achieve viability at a small scale. New technology may therefore, paradoxically, aid the rebirth of old-fashioned community-based banking.
In June 2016, new UK challenger bank The Services Family announced it will launch by the end of 2016. The bank aims to provide financial services to serving and former members of the armed forces, emergency services, and their families. It will initially focus on providing mortgages and small business loans before expanding into full service banking upon gaining its banking license in 2017.
Dedicated financial provision for the UK’s armed forces has been a rarity. The government-inspired launch in 2015 of a credit union service aimed at the forces has been one of the few efforts in this area. In contrast, the US has long catered for this market, with dedicated providers such as USAA and Navy Federal carving out a niche. Both credit unions have thrived and have built up very loyal and engaged customer bases, aided by the skillful use of social media.
Their experiences auger well for The Services Family. Digital provision will let it achieve viability at small scale, and a tight focus on a single demographic will make it is easy for it to build a strongly differentiated brand with a distinctive identity. By building a like-minded community of loyal customers, The Services Family will be able to emulate providers such as The Co-operative Bank and First Direct, which both enjoy high satisfaction and advocacy rates.
If The Services Family is successful it may encourage the entry of similar providers. The trend in the UK over the last few decades has been one of consolidation, mergers, and acquisitions, with the market becoming concentrated in the hands of a small number of national banks. However, the growth of specialist provision could reverse this centralization. The large generalists may see their market shares eroded by niche banks catering for clearly defined segments, such as students, the retired, recent migrants, and public sector workers.
Technology will lead to a more fragmented future for banking. New challengers will revert to a more community-focused approach to financial services provision, reminiscent of the old co-operatives and building societies that rooted themselves in particular communities and occupations. Ultimately, the banking landscape of 2030 may end up resembling that of 1930.
By Daoud Fakhri, Prinicipal Retail Banking Analyst