The inevitability of the banking industry being overwhelmed by tech companies is far from certain. At present, writes Brian Caplen, the facts suggest banks have greater staying power.

It is hard making a case for the major banks surviving the threat from big tech and fintech challengers when your day job is editing The Banker, as critics are bound to conclude bias.  

But the figures from the latest Top 1000 World Bank ranking lend support to the 'banks are safe' argument, as does a new paper from veteran bank analyst Sam Theodore entitled 'Big tech won't eat the banks' lunch in the foreseeable future'.

In the UK, and despite all the noise and tacit official support for challengers, the market is dominated by the banking majors. The top six UK banks make 90% of the profits, as shown in the table below. The challengers that do exist are better described as niche banks rather than tech players; for example, Shawbrook (ranked 852nd) does specialist savings and lending, Paragon (ranked 695th) does specialist mortgage and business finance, and Metro (597th), despite all the froth is, in reality, close to the traditional branch-based model. 

UK Banks 2019

The report from Scope Insights (a separate entity from the ratings agency) makes the case that in western Europe, financial penetration is 94% to 99% with the majority centred on the banks, making them somewhat immune to threats from the GAFA grouping (Google, Amazon, Facebook and Apple). At the same time, big tech's public image has worsened and regulators are looking at coming down on them, making any attack on financial services less likely. 

This is very different from the situation in China, where the banks were not so embedded in the market, and tech players such as Alibaba and Tencent could provide financial services to the unbanked or underbanked.

The US is somewhere in between – financial penetration is high but more of it is held outside the mainstream banks, with asset managers and investment banks giving more scope for a potential assault from the GAFA. 

This is not to conclude that banks can be complacent. They need to work hard on taking their institutions into the digital age. But provided they do that they should hold on to their market in Europe at least. 

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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