Former Allied Irish Bank chief operating officer Anne Boden plans to take on the incumbent lenders with the launch of a new branchless bank, delivering services predominantly via mobile devices.
The as-yet-unnamed firm, backed by digital advertising firm WPP, will apply to UK regulators for a formal banking licence in the coming weeks, according to the Times, and is expected to launch mid-2015.
Led by Boden, who initially trained as a computer scientist, it aims to deliver innovative services via smartphone and tablet devices, and will be targeted at 24 to 35 year olds. According to her LinkedIn profile she is 'leading a new bank for a digital world'.
“This is a very ambitious plan. We are going to bring scale and a very different proposition to the market place,” Boden told the Times. “We are talking about millions [of customers] within five years.”
The bank will seek to make use of the “huge, huge rich seam” of accessible customer data, and will be closer to web firms such as Google or Amazon than traditional banks, she said.
For example, transactions could be electronically ‘tagged’ to provide customers with feedback on spending habits and help manage finances. Location-aware technology in mobile devices could also be used to prevent fraud, alerting users if their card is in use at a different place to their smartphone.
Unlike start-ups entering the UK market in the past, the new bank will be able to plug directly into the financial sector payments network, rather than paying an agency bank for access – one of the many traditional barriers to entry for challenger firms. However, there are a number of challenges still to be faced, such as raising £100 million capital ahead of launch.
Digital banks to rival traditional lenders?
The announcement of the project comes as the Financial Conduct Authority and Prudential Regulation Authority considers banking licence applications from a further 25 new lenders, potentially opening the door for more firms that deliver services digitally rather than via branch networks.
This includes Atom, created by Metro Bank founder Anthony Thompson, which claims to be the UK’s first ‘digital only’ bank when it launches next year. Thompson recently told ComputerworldUK that many of the new banks will have the advantage of not being tied to legacy infrastructure, allowing them to innovate and bring products to the market more quickly than competitors.
“Big banks have not been too slow to address digital – but they have been doing it with one hand tied behind their back because their existing core banking platforms are so old and so clunky and prone to breakdown,” he said.
According to TechMarketView analyst Peter Roe, the introduction of branchless ‘digital’ banks is unlikely to have a major impact on the larger players’ revenue in the short term at least.
However, they could gain a foothold in the market by offering niche services, with customers potentially using two banks - one which provides personalised services via mobile devices for payments, for example, and a more established firm for products such as mortgages or life insurance.
“What the big banks need to be afraid of is that these guys come in with a niche product and they get accepted by a group of customers, start broadening their portfolio and building a brand that is accepted for the bigger decisions,” he said.
“That is why the larger banks have got to move quickly - not because they will be nibbled away at with payments and shopping, but the impact it may have on their longer term business.”