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The retail banking renaissance

We are witnessing a retail banking renaissance: new entrants and digital disruptors are entering the market and the established banks are taking notice. These new entrants are moving fast to build out competence and credibility in this notoriously conservative sector. Consumers have welcomed digital disruptors with open arms in other walks of life; it was only a matter of time before banking became the focus.

New players in the banking ecosystem will need to invest in technology. But unencumbered by legacy systems they can take a fresh approach. An attractive and cost-effective choice is a utility model with the technology hosted externally, yet controlled by the business. This approach can free up budget to invest in the front-end technology which can really set an offering apart – and deliver a great customer experience.

A new entrant with a strong brand, sufficient capital and a fresh consumer experience, free of the burdens of legacy systems, can pose a genuine threat to segments of the established market. So how can the established players rid themselves of the burden of technology? The answer: technology partners. A processing partner builds one system which can be shared by many banks. The huge cost burden of keeping the system compliant through the plethora of regulations imposed by UK, European and international regulators can now be shared across multiple institutions, cutting running costs. Costs can be linked directly to growth with a simple cost-per-account model. There is minimal capital outlay up front and huge fixed costs are replaced with far smaller variable running costs linked to business success.

Even a few years ago this idea was attractive in theory but impractical due to the technical constraints of modern systems and the complexity of integration. In today’s cloud-based, web-services driven world, all of this is entirely practicable and at dramatically improved price points. Across the industry, the inefficiency of having dozens of home-grown systems to maintain and upgrade has a meaningful impact on the cost of borrowing and the savings returns of the general public.

Big banks won’t move to a shared model overnight. However, almost all large banks consist of many sub-brands, each of which uses different technology and it is easy to start with one of the smaller brands. Once the model is proven, expanding out can be a low risk, incremental move to yield fast returns. These new partnerships will allow banks to focus on building great products and services and let their IT teams focus on making customer journeys exceptional. They will let processors do the boring stuff reliably, securely and at a fraction of the cost.


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