UK banks have been attempting to address the major disruption – and opportunities – that are presented by digital technologies. However, with a flock of newer and potentially more agile lenders - such as ‘digital-only’ Atom Bank - preparing to enter the market, can the big incumbents transform their businesses and innovate quickly in the new digital landscape?
One bank in the midst of this change is Royal Bank of Scotland. Last week the bank announced a £1 billion investment in digital technologies to improve customer interactions, with spending on existing online and mobile capabilities, improving data analytics, and equipping branches with the tools to succeed in the face of declining footfall – such as providing iPads for online banking sign-ups and free wi-fi for customers.
For RBS, the digital agenda is all about putting the customer at the heart of the business, said Les Matheson, chief executive officer of its Personal and Business Banking division.
He told analysts: “We want to be customer-led, we want to make sure we have fast and simple processes, and we will have market leading use of customer data and analytics. So we're going to differentiate on what our customers value most, being easy to deal with, giving great customer service, acting as an expert and trusted advisor. It's all about building a truly customer centric bank.”
Others UK banks such as Barclays have also been investing heavily in digital technologies. Over the past two years Barclays, arguably the most advanced in its adoption of new customer-facing tech, has launched a range of services including the popular PingIt person to person payment platform, cloud-based document tools, and mobile banking platform that is considered to be leading in the UK market.
However, both banks, as with many of the large lenders in the UK, are in the midst of significant restructuring of core IT systems, with RBS embarking on a multi-year project to rationalise its application estate.
This reliance on massively complex legacy infrastructure, in many cases built decades ago and currently under regulatory scrutiny, means that innovating at pace can be a major challenge. Rather than focusing on innovation, many banks are tied up with improving the resilience of ageing infrastructure that can struggle to support mobile and online services.
According to Anthony Thompson, Atom Bank founder and former chairman of Metro Bank, the reliance on out-dated and highly interconnected back-end systems means incumbent providers are at a disadvantage in the future banking landscape.
“Big banks have not been too slow to address digital – but they have been doing it with one hand tied behind their back,” he told ComputerworldUK. “This is because their existing core banking platforms – the stuff that does all of the transactions – are so old and so clunky and prone to breakdown.”
He added: “They may have a lovely front end but it will never be transactionally seamless because the back end can’t do that.”
When it launches next year, Atom Bank claims it will be the first ‘digital-only’ bank, providing all of its services through mobile and digital channels, with no physical branches. Rather than relying on an upfront investment in on-premise infrastructure and costly software licences, Atom Bank will be supported by a software as a service platform set up in partnership with financial technology provider Fiserv.
The service aims to address one of the major barriers to entry for new banks - technology investment costs. With the government relaxing rules for new entrants around capital requirements and improving access to payments systems owned by the large lenders, the cloud service is targeted at providing the necessary infrastructure for the 30 banks currently applying for banking licences.
This could mean that a wave of new financial services firms will come to market that are able to innovate quickly, with digital at the heart of their business, rather than added on top of archaic systems.
The cloud approach differs from the route taken by other so-called ‘challenger banks’ that area also offering an alternative to the incumbents. For example, the re-launched TSB continues to rely on the legacy systems of Lloyds, while Sainsbury’s Bank, which announced a £90 million project to outsource its IT to FIS, has done so on a more traditional infrastructure model.
However, it is not the only shared infrastructure service among banks, with Yorkshire Building Society providing a platform for other smaller scale banking firms. Attitudes towards the cloud are beginning to soften in the financial services sector, and Thompson admits that he would have launched Metro Bank on cloud-based infrastructure had a viable option been available at the time.
According to Peter Roe, financial services analyst at TechMarketView, the adoption of cloud services by the larger banks could be one way for the large providers to gain some of the agility of new entrants.
“As challenger banks explore the capability of cloud-based and “as-a-Service” models, we would expect to see the more established banks begin to place more reliance on these approaches to reduce costs and improve agility,” he said.
“However, the members of the old order had better start moving quickly as the times, they are a-changing.”