Analysis: No longer a ‘sunk cost’ – technology is now causing a shake up of the sleepy banking sector.
Tech based disruptor banks built on ‘off the shelf’ enterprise IT are threatening traditional banks still stuck with ageing and expensive legacy systems.
In a report on the UK retail banking sector the Competition and Market’s Authority (CMA) highlighted low cost technological innovation as the catalyst for more competition.
UK customers are adopting tech based banking with vast numbers using mobile banking. The report said that "the UK has one of the highest rates of mobile banking adoption in the world", with customers in the UK estimated to be logging on to banking mobile apps 10.5m times day, transferring £2.9bn each week.
The report says instead of IT just being a "sunk cost", firms who want to operate in the retail banking market "are now able to purchase preconfigured (‘off the shelf’) IT solutions and outsource the hosting of IT platforms and applications to third parties."
The CMA said there was no evidence that such solutions could not be scaled up as the banks expand. It said such systems "appear to be less costly than many established banks’ existing legacy systems in enabling expansion and the development of new products and services."
Disrupter banks entering the UK retail banking market include Metro Bank, which was the first entirely new UK bank in 100 years when it launched and Atom Bank, a wholly digital offering that received its banking license earlier this year.
Atom’s chief innovation officer Edward Twiddy said: "Technology is a huge help. A massive proportion of banking services can be processed very quickly and very efficiently by the bank using ever increasing capacity and connectivity. But now this is matched with incredible processing power and connectivity in the pockets of many people.
"So new banks get the chance to design for a technologically empowered age, which is also a more democratic age with power and information that is less asymmetrical. "
Richard Gadd, MD UK & Ireland at Hitachi Data Systems, who have major banking clients revealed his ongoing discussions around technology with the Lloyds CIO.
At a roundtable, Gadd said: "Business strategy in [Lloyds] is very much being driven by technology. The new competitors that Lloyds refer to are being enabled by technology. The changing demands and expectations of the customers are based on access to and adoption of new technologies."
A CMA spokesperson told CBR. "We’re very supportive of [new banks] being in the market. We’re a competition authority!"
Mark Gunning, global business solutions director at banking software outfit Tenemos told CBR: "Our smallest and largest customers use exactly the same Temenos software. As a result, our smallest customers can grow to an unlimited extent using the same software as the large tier one organisations."