Goliath is starting to worry about David.
Main Street banks believe upstarts like Monzo, N26 and Chime, known as challenger banks, pose a significant threat to their business, according to a recent survey.
Fraedom, a credit card specialist who works with companies like Visa, SunTrust, and Bank of Montreal, surveyed bankers on what some of the biggest impacts to their business will be in 2019. The vast majority (80%) believe challenger banks have an increased impact to their business, and 30% pegged the new competitors as the biggest disruptive threat to their business in 2019.
As a result, building and improving current technology platforms are two areas bankers believe investment will go towards this year. Nearly half the respondents say their firm's legacy technology is the biggest thing holding them from growing.
Banks typically spend 80% of their technology budgets on legacy technology maintenance, according to Deloitte, which represents billions of dollars. Managing technology was one of the key drivers in the recent SunTrust-BB&T merger.
"In the last three years I've seen more change in banking than in my previous 42 years at BB&T. And that's saying a lot," said BB&T CEO Kelly King in the bank's most recent annual shareholder letter. "For the latest, most jarring phase of change, we face a fundamental choice – disrupt our business or be disrupted."
Challenger banks' digital offerings have become increasingly appealing, especially to younger consumers. These new banks have been quick to grab market share from the traditional players any chance they get. Chime, which is reportedly closing in on a $1.5 billion valuation, opened 10,000 new accounts in 24 hours in the wake of Wells Fargo's recent outage, according to Chime's co-founder and CEO Chris Britt.
Big banks, however, have not remained complacent. In addition to investing more on their technology platforms to offer a better customer experience, they have been able to increasingly win tech talent away from Silicon Valley.
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