The changing landscape of banking
The UK banking landscape changed dramatically following the financial crisis of 2008. Since then the Bank of England has authorised 28 new banking licences and the market has seen a further 20 banks enter the savings market.
These include new firms purchasing existing licences (e.g. Aldermore, Shawbrook, Hampshire Trust), by passporting into the market on an EU banking licence (Ikano), getting a variation of their existing licence (Ford Money) or international banks expanding their activities into the domestic market.
All potential entrants have several things to consider before entering the sector, including:
- Is there room in the market for the areas or sectors you wish to compete in and how will you differentiate your propositions?
- How will you raise the capital and operating costs needed to gain authorisation and reach profitability?
- Which technology platform(s) will you use?
- Can you attract appropriately qualified and skilled employees to work for you?
- Will you service your customers directly, use outsourced providers or a mixture of both?
Banking licences take time and require investment
While the process of obtaining a banking licence application has been made easier and cheaper by historic standards, it’s still a costly and time-consuming process. Those who have made it through to full authorisation have spent millions of pounds and between two and three years to do so.
Authorisation is a significant milestone but, in truth, it is only the start of the hard work.
Technology will drive innovation in the savings and mortgage sectors
New banks need to attract customers to their savings and lending propositions in significant numbers and relatively short timeframes, if they are to move into profitability. New providers need a compelling business case to sell products – simply marketing what other providers offer will not prove effective in the long term.
Innovation in the form of a product range that differentiates is far more likely to prove successful. The utilisation of a tried and trusted technology partner can help make this happen and ensure compelling user journeys. It’s at this point where the quality of the work done through the authorisation process and mobilisation can make a huge difference.
Mistakes have been made. We have seen new providers enter the market with propositions targeted to a completely different demographic than typical savings customers, and wrongly configured products and data requests in their customer journey that are completely unnecessary, causing significant fall out during application. To boost the chances of success, providers are encouraged to establish a partnership with a respected technology provider to help build and support these products.
New entrants need trusted technology in a highly competitive and regulated market
The UK market is a highly competitive space in the savings and mortgage sectors. New entrants need technology vendors with proven deep market expertise. This will ensure that technology supports a fully automated journey to deliver operational efficiency and innovation that a new entrant would look to bring to market.
With varying nuances and niches within the savings and mortgage sectors, such as the extended advice requirements seen in the equity release market, or the manual underwriting approach seen within specialist sectors, there is a benefit to opting for a tried and tested, proven solution that has the flexibility to configure where needed, and the expertise to match. This means new entrants can innovate through products, service and speed to market, whilst ensuring they tick all the boxes from a regulatory perspective and have the right solution to service customers.
James Blower, founder of specialist savings consultancy, Savings Guru, who has worked in the new entrant bank sector since 2008 said: “Speak to anyone who has been through the process and they will say that being awarded a banking licence and launching successfully to the market is one of the hardest things they have done in their career. Choosing the right partnerships along the way is critical to success and the right technology partner is crucial.”
Our approach at DPR encompasses assistance with the launch, interim and full banking license processes. Our relentless commitment to continuously develop and refine our solutions means we help our clients avoid the pitfalls that others have made.
By Nick Lawler, head of business development, DPR