Will online-only banks change the banking industry?
Our Technology of the Week will be a comparison of two different business models in the online banking industry. We critically evaluated whether the online-only bank is a viable substitute for a traditional bank that has integrated internet into its strategy and whether or not this might mean the beginning of a new banking era. Therefore, we will compare the business model of Knab, the online only bank, with the Rabobank, a traditional bank.
In 1895 a cooperative of farmers started collecting credits from the local community and giving out loans. This was the first foundation of what we today call the Rabobank. The Rabobank specializes in banking, asset management, leasing, insurance and real estate. Today all bank affairs at Rabobank can be managed digitally, however the option remains for customers to visit physical stores and arrange their bank accounts manually.
Knab is an online-only bank that portrays itself as ‘the bank of tomorrow’. Its striking name is derived from the mirrored spelling of the word ‘bank’. This consumer bank was introduced in September 2012 and is part of the AEGON bank N.V. group. Réne Frijters, the founder of Knab, worked for two years on the launch of the website. His intentions were to create a revolutionary concept that would change the banking sector.
We compared both the strengths and weaknesses of the two business models in the table below:
|Strengths||Convenience||Has lots of different products to offer|
|New Technologies||Good CRM because they still have face-to-face contact|
|Economies of scale due to lack of brick-and mortar stores||Brand name is well known across the country|
|First mover advantage|
|Weaknesses||Poor CRM||Reputation due to Libor affair|
|Safety remains a large concern for online banking due to online fraud||Slow moving structure|
|Offer limited amount of products|
Knab and Rabobank both have different business models and a different approach towards (internet) banking. Therefore it is hard to predict if online-only banks will be the future of banking, as so far traditional banks still have more market share, and it is hard to convince customers to switch to online-only banks due to high switching costs. Based on the strengths and weaknesses it looks like in the near future traditional banks will still exist, as the growth of the online-only bank Knab is relatively disappointing.
Online-only banks seem an addition to the market, instead of a dangerous new competitor. However, since the whole world is digitalizing it is possible that in the long run traditional banks will decrease in market share and have to close some of their stores, because their costs are higher than online-only banks. This will lower the competitive edge of the traditional banks as their brick and mortar offices is what differentiate them from online-only bank. For customers an online-only bank can be a good substitute for a traditional bank if they only seek basic products and do not long for a physical store. A new business model has been introduced, but there is not enough evidence to mark the beginning of a new banking era.