Eighty-four percent of the entire UK population still have banks with the seven major high street banks, which include the ‘big four’ clearing banks: Barclays, Lloyds, HSBC and NatWest.
These data, published in a recent Bank of England (BoE) report, show the highly concentrated nature of the UK banking market, Andrea De Gottardo, CEO of UK neobank Kroo, told PYMNTS in an interview, adding that the customers, especially Millennials and Generation Z, are quite unhappy with the services provided by these large financial institutions.
“They’re not digital, they don’t have their backs, and they don’t share their values,” he said.
It’s a gap that Kroo seeks to fill, enticing traditional banking customers with a “safe and secure” digital banking product that “connects you with the people around you and does social good for the planet in addition to services.” standard banking”. [service] you expect,” he noted.
Read more: Sustainability is key to appealing to Millennials and Gen Z customers
The neobank recently obtained a full banking license from the BoE, allowing Kroo to transfer its existing customers to a new personal checking account for free and to offer its customers overdrafts, loans and savings products in addition to its services. existing.
Related News: UK Digital Bank Kroo obtains banking license
De Gottardo also said he was a “big fan” of the European Union’s open banking system – the regulation that requires retail banks in the region to make customer account information available to non-bank third parties. through the use of application programming interfaces (APIs).
And while it has been difficult for banks to prepare for its implementation, customers have a lot to gain, he said, especially when it comes to borrowing from a lender. which is not their personal bank.
“Before open banking, because the lender [other than your main bank] didn’t know enough about you, they had to use standard and often inaccurate credit bureau data to determine how much money you could afford, and as a result customers often received a higher rate than what they deserved,” he explained.
Read also: Open Banking bumpy, but the adoption curve is better than contactless payments
With open banking, however, getting a loan from an institution you don’t do business with has become easy because lenders can now access the same banking information with the customer’s permission. “That way we can make better credit decisions, which often results in lower rates for customers and lower default rates for the bank,” noted De Gottardo.
Not a BNPL “fan”
When it comes to lending in the Buy Now Pay Later (BNPL) space, regulators across Europe, particularly in the UK, are working to regulate the sector and thwart irresponsible lenders. .
Related: UK BNPL regulation unlikely before mid-2023
Last month, for example, the UK government announced it was strengthening regulation of the sector with new rules under which BNPL lenders will have to be approved by the Financial Conduct Authority (FCA) and explain their terms to consumers of a manner that is “fair, clear and not misleading,” PYMNTS reported.
It’s a move De Gottardo welcomed, noting that while “there’s nothing wrong with the product per se”, he wasn’t entirely in favor of it due to the way it was marketed by some BNPL suppliers.
See also: What’s Next in BNPL: Zopa CEO Says Longer Tenures, Bigger Loans
“When you market it in a way that basically allows someone to buy something they can’t afford while charging a ridiculously high rate, [then] it is not in the interest of the client [but rather] in the best interest of the bank,” he noted.
That said, he acknowledged that it would be unfair to put all BNPL lenders in the same basket, as some providers follow the rules and take the necessary steps to lend responsibly to ensure customers have the information and appropriate support before taking out a loan.
Further reading: Dutch Payments Association Managing Director Says ‘Positive Friction’ Will Protect BNPL User
Crypto will take time
The UK is taking various steps to promote the use of crypto assets and blockchain technology more widely, with the Department of Finance announcing in June that the country will soon begin live testing crypto blockchain technology in financial market activities. such as trading and settlement.
More on this: UK Government Pushes for Crypto Sandbox and Stablecoin Regulation
But Starling Bank CEO Anne Boden recently clarified that the UK neobank she founded will be moving away from digital assets for now, due to the heightened exposure to fraud risks customers face.
Read more: Why the CEO of Starling Bank said no to crypto
De Gottardo said he agreed with his view, adding that regardless of that sentiment, there is currently no possibility for a fully licensed bank to operate in crypto “because the Bank of England is not there yet.”
However, he said Kroo will keep a “close eye” on the space going forward, and when regulations are in place and there is sufficient customer demand, they will work hand-in-hand with the BoE to respond. to this need.
But it will likely take some time to materialize.
“I personally don’t see that happening for at least two years, so right now my position is fully aligned with Starling’s. But things could change and [we will do the needful then] because we always want to be at the forefront of the changes that are happening in the market,” he said.
Register here for daily updates on all of PYMNTS’ Europe, Middle East and Africa (EMEA) coverage.