Key Takeaways
- The convergence of marketing and technology in finance is less about advertising and more about embedding customer acquisition, engagement, and retention into the core product architecture.
- Incumbent banks face a structural disadvantage, battling legacy core systems and regulatory friction that impede the agile, iterative innovation at which fintech challengers excel.
- While neobanks once competed primarily on user experience, many are now achieving profitability, proving the viability of their lower-cost, digital-first operating models. Starling Bank, for example, reported its third consecutive year of profitability in 2024.
- The strategic path for traditional banks is unlikely to be pure imitation. A more viable future involves becoming integrated platforms, leveraging their scale and trust to partner with or acquire fintechs, thereby outsourcing innovation while retaining core balance sheet functions.
The observation that leading banks ought to pay closer attention to the intersection of marketing and innovation is hardly a novel one. As noted by Scott Henderson in a recent commentary, strategic advice on this topic from prominent voices like Jim Marous has remained relevant for years precisely because the financial sector has been slow to internalise the lesson. Yet, we are now at an inflection point where this convergence is no longer a matter for future strategy papers; it has become the central battleground. The challenge for incumbents is that fintechs have not simply built better marketing departments; they have redefined the very nature of marketing as an integrated function of product, data, and user experience, fundamentally altering the economics of consumer banking.
Marketing as Architecture, Not Advertising
In traditional banking, marketing has historically been a siloed function, responsible for brand campaigns and product promotion, executed at arm’s length from technology and operations. This model is fundamentally broken in a digital context. Fintech challengers have demonstrated that modern financial marketing is not a layer applied on top of a product, but rather the architectural blueprint for the product itself. The entire customer journey, from frictionless onboarding to gamified savings features and personalised insights, is a continuous marketing exercise designed to acquire, engage, and retain.
This approach manifests in a superior command of unit economics. While incumbents grapple with the high fixed costs of branch networks and legacy systems, neobanks operate with a leaner, data-driven model. Their focus is relentlessly on optimising two key metrics: Customer Acquisition Cost (CAC) and Lifetime Value (LTV). By using data analytics to understand user behaviour, they can deploy small, targeted features that drive engagement and increase LTV at a marginal cost, an agility that monolithic banking systems simply cannot replicate.
The Incumbent’s Dilemma: A Moat Made of Mud
It would be a mistake to assume that the leadership at major banks is oblivious to this shift. The inertia they face is not one of ignorance, but of immense structural and regulatory friction. The supposed moat of a traditional bank—its established brand, regulatory licences, and vast customer base—has in some respects become a quagmire of legacy technology. Core banking platforms, some of which date back decades, are notoriously difficult and expensive to overhaul. A simple product change that a fintech could push live in a two-week sprint might take a major bank 18 months and a seven-figure budget to implement.
Furthermore, the regulatory burden, while a barrier to entry for new players, also acts as a brake on innovation for incumbents. A compliance department accustomed to signing off on newspaper advertisements and branch posters must now contend with the risks of real-time, AI-driven customer communications and rapid product iteration. This operational drag creates a performance gap that agile competitors are all too willing to exploit.
A Look at the New Competitive Metrics
The success of this new model is no longer hypothetical. After years of prioritising growth over profit, several leading digital challengers have proven the sustainability of their model. This shift from “growth at all costs” to demonstrated profitability marks a significant maturation of the sector. The data paints a clear picture of a market in transition.
| Metric | Leading UK Neobank (e.g., Starling) | Typical Incumbent Bank | Source |
|---|---|---|---|
| Pre-Tax Profit (FY 2023) | £195 million (year ending March 2023) | Variable, but supported by wider business lines | Starling Bank Annual Report 20231 |
| Customer Accounts | 3.6 million (as of March 2023) | 15 million+ (for a major UK bank) | Company Reports |
| Cost-to-Income Ratio | 44.6% (year ending March 2024) | ~60-70% (Retail banking average) | Starling Bank Annual Report 20242, McKinsey3 |
| Primary Driver of Acquisition | Word-of-mouth, superior product features | Brand recognition, branch presence, bundled offers | Industry Analysis |
Starling Bank posting a third consecutive year of profit in its latest report underscores that the neobank model is not merely a venture capital experiment.2 Their significantly lower cost-to-income ratio is a direct result of their technology-first, marketing-integrated strategy. While incumbents still command a larger customer base, the momentum in growth and efficiency lies firmly with the challengers.
A Hypothesis on the Future of Banking Distribution
The path forward for incumbents is not to simply mimic fintechs. A futile attempt to out-innovate a start-up on its own terms, while tethered to legacy infrastructure, is a recipe for failure. Instead, the most astute strategic response will be one of integration and platformisation.
This leads to a closing hypothesis: the most successful banks of the next decade will not be the ones that build the most slick or feature-rich mobile applications themselves. Rather, they will be the ones that master the art of becoming the underlying utility. They will leverage their balance sheets, trust, and regulatory expertise to become a Banking-as-a-Service (BaaS) platform, upon which a thousand fintechs can build their niche consumer-facing solutions. By providing the ‘dumb pipes’—the core infrastructure of holding deposits, processing payments, and managing risk—they can cede the costly battle for the customer interface to more agile partners. In this model, the bank transitions from being a monolithic product factory to a highly profitable distribution platform for financial services, capturing value from the entire ecosystem without having to win every innovation race. It is a less glamorous future than being a disruptive innovator, perhaps, but a far more pragmatic and potentially profitable one.
References
1. Starling Bank. (2023). Annual Report & Accounts 2023. Retrieved from Starling Bank investor relations.
2. Starling Bank. (2024, July). Starling reports third full year of profitability. Retrieved from Starling Bank newsroom.
3. McKinsey & Company. (2023). McKinsey’s Global Banking Annual Review 2023. Retrieved from https://www.mckinsey.com/industries/financial-services/our-insights/mckinseys-global-banking-annual-review-2023
4. Boston Consulting Group. (2023). Global Payments 2023: A New Golden Era. Retrieved from https://www.bcg.com/publications/2023/global-payments-report
5. The Financial Brand. (2024). The Future of Digital Banking: Trends & Predictions. Retrieved from financial industry publications.
6. @scottthenderson. (2024, November 19). [I love seeing marketing and innovation meet fintech and banking…]. Retrieved from https://x.com/scottthenderson/status/1859666174340104302
