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The collapse of Lehman Brothers 10 years ago wasn't just a reckoning for the financial system — it was an epiphany for coders and entrepreneurs who thought they could do better.
Lehman's shuttering not only stunned nervous bankers, investors and savers. It sent shockwaves throughout the global economy; a symbolic fall from grace for one of the many institutions seen as too big to fail.
The day was Monday, September 15, 2008. Lehman Brothers Holding Inc. filed for bankruptcy, and the future of a financial behemoth holding more than $600 billion in assets and that employed 25,000 people was sent into disarray. It was the biggest bankruptcy filing in U.S. history.
"It was a big and powerful investment bank, so the announcement came as a shock," Nikolay Storonsky, a former equity derivatives trader at Lehman, told CNBC by email. "We were told without much warning and it seemed to happen quite quickly."
Storonsky, 34, worked at the investment banking giant — formerly the fourth biggest lender in the United States — for two years. The British entrepreneur feared he would struggle with further employment, being a recent graduate, but soon extended his trading career at Credit Suisse. Fast-forward 10 years and Storonsky is the chief executive of digital banking upstart Revolut, which he founded alongside developer Vlad Yatsenko.
The toppling of Lehman was one event in a two-year crisis. But its impact on capital markets was severe, leading to almost $10 trillion wiped off the market value of global equities in the month that followed.
Lehman's problems were largely attributed to its management of flawed mortgage-backed securities. These were securities that had been given favorable credit ratings from agencies, but which proved problematic as subprime mortgage borrowers defaulted in droves and the housing bubble burst.
The fallout from the bank's collapse resulted in reduced market liquidity, fiscal and monetary stimulus and widespread distrust of the banks.
Bailouts, sweeping regulation and consolidation in the banking sector ensued. New rules meant lenders had to deleverage and increase their capital buffers, a move many believe has mostly guarded the financial system from another meltdown of similar proportions.
But although financial conditions have mostly improved, Revolut's Storonsky believes one ramification remains: that consumers' trust in banks has dwindled significantly, and it hasn't recovered.
"I'd say that the trust in banks is not that strong," he said. "Recent scandals have undermined the biggest names, and I think we're beginning to see start-ups earn the trust of consumers."
Indeed, in the last few weeks two European banks have made headlines over such scandals. Denmark's Danske Bank has been investigating what is rumored to be Europe's largest money laundering scandal in history, while Dutch lender ING lost its financial chief a week after it was fined $900 million.
In Britain alone, the number of new banking players in the market has risen 63 percent since 2005, according to Accenture, and entrants have so far captured 14 percent of total revenues in the sector.
"Since the financial crisis, regulation and digital disruption has changed the banking landscape," Julian Skan, senior managing director in banking at Accenture Strategy, told CNBC in an email. "We are now looking at a very different ecosystem from 10 years ago. More competition, more business models and more disruption to revenues."
Skan added: "Although traditional banks still dominate the market, new players... are beginning to generate significant revenues and are challenging the competitiveness of traditional banks."
Revolut counts itself among a number of fledgling digital "challenger banks" — up-and-coming British financial technology firms whose aim is to eat away at the customer base of traditional banks. Such start-up players include Monzo, Starling and Atom. Most have obtained a banking license from regulators and operate without a single physical branch.
But the phenomenon isn't exclusive to the U.K. Germany has N26 and Fidor, the U.S. is home to Chime, and Brazil's Nubank has been around since 2013.
What's changed over the years is that some of these players have transitioned from payment upstarts to regulated banks worth hundreds of millions of dollars. In fact, Revolut is now valued at $1.7 billion after it raised $250 million earlier this year. And Monzo is gearing up for a fundraising of its own later this year that would land it a valuation of up to $1.5 billion, according to the Financial Times. The bank declined to comment when contacted by CNBC.
These companies are dipping their toes into nearly every kind of financial service, from current and savings accounts to insurance, credit and wealth management.
For Storonsky, Revolut — and various other fintech start-ups — might not have come about had it not been for Lehman's fall.
"Many of Lehman Brothers' top employees who left in the aftermath of its collapse decided to start their own businesses," he said. "A number of successful entrepreneurs rose from the ashes who were pretty disillusioned with the financial system."
Customers have come to expect a different kind of experience from their banks in the age of the smartphone. The rapid growth of platforms like Amazon, Netflix, Uber and Deliveroo brought with it a model of cramming several products and services into one basket, whether that's physical goods, entertainment, transport, food — or financial services. Above all, people are now more accustomed to assume convenience from these products and services.
Established players — conscious of their fintech rivals — have been rushing into the mobile arena, testing slick apps in a bid to lure millennial customers. HSBC this year launched its "Connected Money" app, for instance, which lets customers manage all of their bank accounts — including those from competitors — on one screen. And Goldman Sachs is expected to officially roll out its new digital retail bank Marcus in the U.K. this month.
A recent regulatory overhaul by the European Union known as the Second Payment Services Directive, or PSD2, means that banks now have to allow tech firms access to customer data, to allow other players to further develop banking products.
And banks are increasingly partnering with and investing in fintechs. HSBC teamed up with fintech firm Bud last year, while Investec and Barclays have struck deals of their own with small business lender MarketInvoice.
Many in both the banking and fintech industries see it as unlikely that nascent firms like Revolut and Monzo will topple the banks, a scenario that has been described as "David vs. Goliath."
Such a claim was slapped down last year by HSBC's Raman Bhatia, who heads the bank's digital strategy in Europe. In an interview with CNBC, Bhatia said the challenge from fintech firms was "overblown," that many financial players can "co-exist" and that banks were "sufficiently primed."
Banks have the advantage of being trusted household names. People are more likely to have heard of Barclays and J.P. Morgan than Revolut or Monzo.
"It's overwhelmingly important for fintechs to invest in building trust, through transparency, honesty, collaboration and providing the best customer experience," Revolut's Storonsky said. "Credibility is important when you want to win the trust of a new customer, but the most important thing is maintaining that credibility through a transparent brand that delivers an incredible service."
But a decade on from Lehman, and the pressure on the established banking players hasn't gone away. The closure of physical branches and ATMs as customers switch to cards and mobile options shows no sign of slowing down.
In the U.K., bank branches have been shutting at a rate of 60 per month, according to Which? Since 2015, a total of 2,868 branches have either closed or were scheduled to be closed this year, the British consumer group said.
And the word "consolidation" is on the minds on many in the banking world as a sector considered littered with too many players looks set for a multitude of merger and acquisition deals.
"The conversation is starting to change, and incumbent banks are looking to platform companies for collaboration," Accenture Strategy's Skan said. "While they accept these big platform players may eat their lunch, banks still want a seat at the dining table. Unless there is a radical expansion of what is considered a banking service, the market is now overbanked and revenues cannot sustain all participants."
But fintech banks could be faced with consolidation of their own, Storonsky said. "Many of the largest banks have too much internal complexity to compete with fast and nimble start-ups and digital-only banks. To adapt, we expect them to consolidate and acquire promising start-ups."
But Storonsky gave one caveat to that statement — that tech giants like Amazon and Google were likely to set that trend before traditional banks get there.
"We expect big tech companies to be more agile than traditional banks to start investing in promising technology platforms and start-ups, with an increasing number of key partnerships, mergers and acquisitions."