Last month, Fiserv’s ‘How to Start a New Bank Seminar’ brought together capital markets and finance experts, legal firms, the existing community of challenger banks and Tier 1 banks over one morning, to discuss the current retail banking landscape and the challenges of starting a new bank.
Host on the day and CMO, International at Fiserv, Travers Clarke-Walker, speaks to bobsguide about the seminar, which was also chaired by Anthony Thomson, non-executive director of Agiliti from Fiserv and founder of Metro Bank and Atom Bank, and explains why he believes the retail banking landscape is ripe for new entrants.
What does the current retail banking landscape in the UK look like?
From a technical perspective, it is arguably easier to start a bank now than it was previously, especially since the regulatory landscape has changed.
Last year, Fiserv launched a product called Agiliti, a Software as a service (SaaS) offering that enables new banks to be established easily and affordably. We did this because we believe the landscape is very positive for new entrants, and also for small and medium (SME) entrants.
Some of the topics that came up in discussion during the seminar, which could be affecting the state of the retail banking landscape at the moment, were the high level of decline in cash usage and account switching volumes. However, Anthony Thomson and other new bank founders said that they are optimistic about their banking models and are not too concerned about switching account volumes because they expect customers to test their services before making a decision about moving their entire account across to a new bank.
There are also governmental and regulation issues currently affecting the retail banking sector. George Osbourne’s recent vow to increase retail banking competition by issuing fifteen new banking licenses in the next five years and the UK Competition and Markets Authority (CMA) investigation into the retail banking services that are available to SMEs and consumers, are also having an effect. If you match this with the amount of growth that is happening in the fintech sector, in particular mobile banking, overall we have an optimistic outlook of UK banking and the opportunities for challenger banks.
Where is the latest and best innovation in the market coming from?
There is clear growth happening on in the Peer-to-Peer (P2P) market, however, I think the more interesting innovation is coming from the use of data and analytics and some banks around the world are already using technology (such as ours) to provide real insight and offer services such as predictive balance. Firms are able to create great user experiences connected to useful and insightful services from underlying transactional data and when you speak to new challengers they often talk about the quality of the experience that they are going to offer by using data and providing insights beneath that data.
What are the key challenges in setting up a new bank in the UK?
The whole application process for setting up a new bank is a challenge. Victoria Raffe, former director of administrative registrations at the FCA, held a session on what the new bank registration process is really like and explained the level of support being offered to people prior to their application being accepted. However, technically applications do not need to be accepted and people can apply for a new bank license without the FCA, that’s something that companies like Fiserv help with.
During the seminar we also heard from an expert lawyer, who said that in some respects when setting up a new bank it’s as much about how you set up your relationships with your financing partners and the legal structures of the bank which can be a challenging. A lot of time can be spent addressing issues such as how the bank will be financed, which is often by participating in funding rounds etc. As well as dealing with the technological and regulatory challenges.
How can banks overcome such challenges and what can be learned from their peers?
Seminars and conferences like ours, which focus exclusively on topics like this help banks to overcome such challenges. Our event brought together seasoned experts who are willing to support others who are just entering the market.
What advice do those who have entered the sector and those working to bring more choice to the banking industry give to both established and new entrants?
The advice that I am hearing more is that if big and established banks really want to compete with new entrants then they should be considering setting up their own new bank. One of the ways for the big banks to compete is to set up a clean and separate entity on the side, alongside also dealing with and improving their own digital offering to their existing customers.
In a recent Fiserv commissioned report with CeBR, we found that by 2020 the volume of mobile banking will have doubled both in transaction and usage, which means that nearly 70 per cent of customers will be mobile banking. Although, it might not be correct to say that it’s all about mobile, it is certainly about the user experience on mobile and new entrants are focusing on this area and are experimenting with simplifying the log-in process with biometrics etc.
Do new entrants believe they can work alongside traditional institutions?
New entrants expect to both work alongside traditional institutions and to utilise their existing infrastructures. They also expect to be part of the traditional institutional make-up rather than being totally against it. There is a community between new entrants and they tend to work together in some respects as opposed to only being in competition with each other.
Were there any other important topics discussed on the day?
One of the topics that stood out to me was how difficult it is for traditional big institutions to innovate easily. Big institutions spend 50 - 90 per cent of their yearly budget on keeping the institution complaint, and are designed in a way which makes it hard for innovation to get done.
A solution to this could in part be down to them introducing more flexible architecture underneath current infrastructures, alongside a willingness to partner with big fintech providers to access the market, which is a more straightforward way of getting access to innovation than trying to partner with the whole fintech community.