Eighty-four percent of the entire U.K. population still banks with the top seven high street banks, which include the “Big Four” clearing banks: Barclays, Lloyds, HSBC, and NatWest.
That data, published in a recent Bank of England (BoE) report, shows the highly concentrated nature of the U.K. banking market, Andrea De Gottardo, CEO at U.K.-based neobank Kroo, told PYMNTS in an interview, adding that customers, especially millennials and Gen Zs, are quite unhappy with the services provided by these major 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 Kroo is looking to fill, attracting customers from traditional banks with a “safe and secure” digital banking product that “connects you with people around you and does some social good for the planet on top of the standard banking [service] you’d expect,” he noted.
Read more: Sustainability Key to Wooing Millennials, Gen Z Customers
The neobank was recently granted a full banking license by the BoE, enabling Kroo to transfer its existing customers to a new personal current account for free as well as offer customers overdrafts, loans and savings products in addition to its existing services.
Related news: UK Digital Bank Kroo Granted Banking License
De Gottardo also said he’s a “big fan” of the European Union’s open banking scheme – the regulation that compels 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 although it’s been challenging for banks to prepare for its implementation, customers stand to gain a lot, he said, especially when it involves borrowing from a lender that is not their personal bank.
“Prior to open banking, because the lender [other than your main bank] didn’t know enough about you, they had to use standard, often inaccurate credit bureau data to determine how much money you could afford, and as a result customers were often given a rate higher than what they deserved,” he explained.
Read also: Open Banking Bumpy, but Adoption Curve Better Than Contactless Payments
With open banking, however, getting a loan from an institution you don’t bank with has been made easy because lenders can now access the same banking information with the customers’ authorization. “This way, we can do better credit decisioning that often results in lower rates for the customers and lower default rates for the bank,” De Gottardo noted.
Not A “Fan” of BNPL
When it comes to lending in the buy now, pay later (BNPL) space, regulators across Europe, particularly in the United Kingdom, are moving to regulate the sector and put irresponsible lenders in check.
Related: UK BNPL Regulation Unlikely Before Mid-2023
Last month, for example, the U.K. government announced that it is strengthening regulation of the sector with new rules under which BNPL lenders will need to be approved by the Financial Conduct Authority (FCA) and explain their terms to consumers in a way that is “fair, clear, and not misleading,” PYMNTS reported.
It’s a move that De Gottardo welcomed, noting that although “there is nothing bad about the product per se,” he wasn’t fully in favor of it because of how it’s been marketed by some BNPL providers.
See also: What’s Next in BNPL: Zopa CEO Says Longer Terms, Larger Loans
“When you’re marketing it in a way that basically enables someone to buy something they cannot afford while charging a ridiculously high rate, [then] it’s not in the best interest of the customer [but rather] in the best interest of the bank,” he remarked.
That said, he acknowledged that it will be unfair to put all BNPL lenders in one basket, as some providers are going by the book and taking the necessary steps to lend responsibly to ensure customers have the right information and support before taking out a loan.
Further reading: Dutch Payments Association GM Says ‘Positive Friction’ Will Protect BNPL User
Crypto Will Take a While
The U.K. is taking different steps to promote the use of crypto assets and blockchain technology more broadly, with the finance ministry announcing in June that the country will soon start live testing crypto blockchain technology in financial markets activities such as trading and settlement.
More on this: UK Government Pushes for Crypto Sandbox, Stablecoin Regulation
But Starling Bank CEO Anne Boden recently made clear that the U.K. neobank she founded will steer away from digital assets, for now, due to the heightened exposure to fraud risk customers were facing.
Read more: Why Starling Bank CEO Said No to Crypto
De Gottardo said he agrees with her views, adding that regardless of that sentiment there is currently no possibility for a fully authorized bank to operate in crypto “because the Bank of England is not there yet.”
However, he said Kroo will keep “a keen eye on” the space moving forward, and when regulation is put in place and there is sufficient demand from customers, they will work hand in hand with BoE to meet that need.
But it will likely take a while to materialize.
“Personally, I don’t see that happening for at least a couple of years, so right now my position is fully aligned with Starling’s. But things might change and [we will do the needful then] because we always want to be at the forefront of changes taking place in the market,” he said.
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