On Friday 7th February our Sixth Form Economists were treated to highly stimulating and interactive lecture from Tom Merry — an Old Cranleighan (North, 1998 – 2004) and Partner at Accenture in their Strategy, Financial Services division.

To begin, Tom introduced the fundamentals of banking with an interactive exercise, which clearly showed not just how banks make money and provide valuable services to society, but also the vital role that scale plays in their profitability. For Upper Sixth Form students just about to start on their final topic area of ‘Financial Markets’ this provided them with a great set of building blocks.

Tom then moved on to introduce the concept of a Neobank, and the challenge they present to the incumbent ‘traditional’ banks who are typically operating with large fixed cost bases and antiquated back-end banking systems. Students were keen to hear about this ‘creative destruction’ in action and the rapidly rising customer numbers for the Neobanks seemed to support the view that the traditional banks days were numbered. Indeed, with their app-enabled access, funky functionality, real-time insights and lower cost per customer basis, the evidence seemed to suggest that the incumbent’s monopoly power was on the wane. 

However, the tide of opinion began to turn when it was revealed how few of the Cranleigh students held these accounts (Monzo, Revolut, Starling etc.) and the fact that even when they did, many held funds in other banks too. From this, Tom painted a very clear picture regarding the challenges facing these exciting and creative party-wreckers — namely scale and loyalty. With clever use of graphics and reference to the interactive exercise, students soon realised that without sufficient scale (customer numbers and fund deposits), profitability for the Neobanks is certainly not assured. As students warmed to the theme and the economic fundamentals clicked into place, the questions began to come thick and fast. Indeed, it was nice to see Cranleigh’s economics pupils begin to realise the implications for them and it was great to hear such insightful questions being asked. Whether or not the Neobanks do manage to successfully break-up the party remains to be seen. However, it is clear that their arrival has meant the traditional banks are rushing to up their game in response and the invisible hand of economics continues to work its magic.