David Rutter, CEO of blockchain software firm, R3 has said ‘cracks are already appearing’ in the banking system following fallout from the COVID-19 outbreak.

Speaking in an interview with City AM, Rutter said, “…when markets go through extreme stress, you see where the cracks are…[this crisis] may be an accelerant for the deployment of new technologies”.

The interview comes in light of the criticism banks have faced in rolling out Chancellor, Rishi Sunak’s Coronavirus business support packages, including the Coronavirus Business Interruption Loan Scheme (CBILS).

According to the latest data from UK Finance, the number of CBILS applications has reached almost 53K, an increase of almost half (46%) since last week.

The total number of applications accepted has reached 25K with a total value of loans approved reaching £4bn. The data suggests that only 48% of loans applied for have been approved.

In his interview with City AM, Rutter suggests that banks will need to address the challenges presented by COVID-19 by reviewing how they use technology.

The need for business support through the Coronavirus pandemic are also now being met by start-up fintech firms such as Starling and OakNorth who have pushed to be among the more-the-forty lenders approved to operate under CBILS by the British Business Bank.

Analysis – stress will test the traditional banks

The first true test for the banking system caused by the Coronavirus pandemic is one of logistics; customers cannot visit their banks, so operating their financial and business lives relies solely on digital technology.

The second test comes in the shape of the burgeoning fintech industry and the crop of digital-only banking brands looking to take a bite out of the traditional banking sector.

The fintech banking industry has focussed on its biggest advantage, speed. Online banks have shown a hunger to roll out smart apps with user experience fundamentals baked in and the traditional banks have struggled to keep up.

Only last week, Santander entered the FX fintech space with its new app, PagoFX, a clear sign that the Spanish bank is feeling the heat from fast-moving competitors such as PayPal and TransferWise.

As with any storm, harsh conditions expose weaknesses in existing systems. Those who survive will have fewer competitors and a clear list of priorities to fix. The current Coronavirus ‘storm’ will be no different and it could be a transformative time for the banking sector.