25 September 2017
Liam Lannon

Digital Transformation

Liam Lannon - Sopra Steria UK

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Challenger Banks have Challenges of their Own

29 June 2016  |  5535 views  |  2

If you think that the UK’s High Street banks have had it tough over the last few years, spare a thought for the new kids on the block…

Sure, the big 4 have had to deal not only with the credit crunch, product mis-selling, systems failures and outages, increased regulation, the CMA, the FCA and new regulations such as MiFid II and soon – very soon – PSD2, where all banks will have to allow access to their customer account information to third parties via open APIs. But they now also have to deal with nimble start-ups with appealing propositions who can cherry pick the most attractive and most profitable customers and offer them a well thought-out product set and excellent – and targeted - customer service. Or even just a single product, one that has been honed and finely tuned to satisfy a specific market demand, be it the highest-paying savings account or a transactional account with all the bells and whistles but without the so last century chequebook. And what’s even worse for the High Street banks is that they have to try and compete with these start-ups – or upstarts – using a creaking legacy infrastructure which isn’t fit for purpose in the digital age. 

So it’s really an unfair fight, isn’t it? It’s as if the High Street banks are playing with a marked deck, or with one arm tied behind their back, while the Challengers hold all the high cards and can pick off the incumbents at will, much like Monty Python’s King Arthur fighting the Black Knight. Or is it….?

While the incumbents have had to contend with IT systems which were developed in the 1970’s, around the time of the widespread deployment of ATMs and when internet banking wasn’t even a twinkle in the eye of Tim Berners-Lee, the Challengers DREAM of having an IT infrastructure to fall back on, or a data centre, or even a Call Centre. Mostly, they have an idea and a target market to go after but they lack the systems and services wherewithal to realise their ambitions. They often have to rely on a systems provider who gets them part of the way to their goal, but who lacks the Business Intelligence and Analytics component or the Business Processes support capability needed to create a comprehensive systems solution.

This means that Challengers have to partner with a number of other providers to realise their goal of an integrated, seamless IT and services offering to support their customer and product ambitions, mostly with a set of components which are not quite as integrated as they would like and where information exchange and a single customer view is far from seamless. In short, they tend to end up with a “legacy infrastructure of the future”, instead of a flexible, upgradeable solution that moves with the times and has built-in future-proofing – which is really how all such systems should be designed and implemented today.

So, the Challenger Banks might be nimble in terms of product development and responsive in terms of customer service but, in reality, their supporting IT solutions can sometimes be as much of a patchwork as an incumbent’s legacy infrastructure, although carefully concealed behind the veneer of a digital front end and a slick mobile app. Not so much a state-of-the-art solution, more of a dead parrot. That’s quite a challenge…

What are your views? Do you think the Challengers have it easy? Are they about to eat the incumbents’ lunch? Or are they faced with exactly the same infrastructure problems and integration issues as their bigger and older competitors? I’d be interested in your thoughts.

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Comments: (2)

Melba Foggo
Melba Foggo - Sopra Steria - London | 29 June, 2016, 12:12

Liam, thanks for this very interesting perspective. As you say, the established line of thought is that challenger banks have it easy – that they’re coming to the market unburdened so can pick up the latest tech and start running instantaneously. The reality is more complicated. Not only is the challenger bank landscape becoming more populated, but just building their full end-to-end systems in the first place can seem overwhelming. It is possible though: today we announced that we’re working to help bring the Services Family (TSFL), a new challenger bank, to the UK market. I think Challengers’ key to success is finding the right digital partner who can provide them with not only a banking platform, but management of full banking and non-banking services - enabling them to focus on their business strategy rather than the tech.

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A Finextra member
A Finextra member | 30 June, 2016, 16:28

thanks. Good read 👍

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Challenger Banks have Challenges of their Own

29 June 2016  |  5535 views  |  2 comments | recomends Recommends 1 TagsInnovationStart ups

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Liam is a Senior Consultant in the Strategic Programmes team of Sopra Steria's Financial Services Sector, working on transformational projects and on the development of retail banking propositions bot...

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