A Technology Solution to a Technology Conundrum?
Projections put West European banks’ IT spending at US$ 57 billion in the year 2014, of which approximately 25% will come from the U.K. The Office of Fair Trading maintains that technology, which accounts for up to 2/3rd of all start-up costs is one of the main reasons why new entrants find it so hard to set foot in the banking market.
In spite of that, several players are trying to get into the U.K. banking space, encouraged by the Government. Metro Bank was the one to end the 100-year hiatus in new ‘high street’ bank creation, whereas Tesco and Virgin are hoping to extend full banking services soon.
It looks like they will be dealing with a mixed bag.
On the one hand, new banks are able to meet regulatory requirements and assemble a suite of retail offerings quite easily. Accessing industry-wide payment schemes such as Chaps and Bacs, and getting hold of individual/SME risk profiles is not a problem either.
Their main challenge is to acquire a sizeable customer base quickly in order to justify the high startup investment, and this is easier said than done given retail customers’ resistance to changing their banking provider.
Hence, Metro Bank limited its expenditure by renting its core banking solution under a pay-per-transaction arrangement. Virgin simply bought out a ready-made platform built for a start-up that no longer exists. It may be worthwhile for newcomers to go with cloud-hosted applications initially in order to keep costs flexible, as well as be able to scale up quickly when required.
As far as gaining customers is concerned, in an interesting twist, other technologies may come to the rescue of these banks struggling under the weight of their initial technology outlay. Numbers released by PayPal and Barclaycard indicate the dynamism in the mobile and contactless payments opportunity, and eBay claims that over a million people in the U.K have used its technology to make mobile payments. Is this the way forward for U.K. banks – fighting technology with technology?
