FR: You provide IT solutions to a range of financial services firms including Metro Bank and Fleet Mortgages - how has innovation changed the way lenders operate?
As well as fast-growth start-ups looking to make their mark, we are seeing more established players take steps to grow and do something unique in their marketplace to differentiate themselves. Embracing digital transformation and a strong IT infrastructure sits at the heart of achieving this. If a business can be agile, and move quickly to capitalise on new trends, it will be well positioned to thrive in a market dominated by well-established players.
Since the financial crash in 2008, traditional lenders have had to tighten their lending criteria to ensure they are compliant with new regulations, and the use of technology has also allowed online-only and other innovative banks with a digital business model to come to the fore.
One company spearheading this approach, is Metro Bank, the first high street bank to launch in the UK for over 100 years, aimed to attract customers away from the established players by offering competitive products and a fresher approach to banking, which included allowing new customers to open a full account with a debit or credit card within just 15 minutes.
There still remain large amounts of borrowers underserved by traditional players which challengers have focused their attention on. Customers with complex financial circumstances, such as self employed or those who have credit blips, these customers have needs that can and should be met appropriately by lenders. Consequently this type of niche borrowing is only likely to increase opportunities for lenders that get their proposition right.”
FR: What benefits do challenger banks offer to brokers and consumers and how do their propositions differ from the 'Big Six'?
There is still huge opportunity for challenger banks in Europe. To support this, more initiatives and backing from the regulator has helped build innovation and encourage new entrants to the lending industry. The FCA’s decision to re-evaluate its ‘technology neutral’ position is a step in the right direction for banks as more and more firms move their operations to digital and mobile platforms to gain a competitive edge.
Ultimately, new processes and the innovative use of technology which moves away from the legacy systems typically used by traditional lenders will support the growth of those operating within financial services, increase the attractiveness of the products they sell and enhance the experience for their customers. The adoption of cloud-based services which the more agile challengers are implementing has also strengthened the customer centric view that banks are taking. Cloud services can allow lenders to make faster, make more accurate lending decisions for their clients and gives them access to a wide range of data.
Innovation and agility are vital to the success of challengers. It will be very interesting to see how they continue to establish themselves against traditional players. It could be argued that the speed and agility that challengers thrive on, actually causes them to land in the territory of running a legacy much faster, allowing newer, more disruptive banks to emerge. If the challenger banks fail to take a proactive approach to stay one step ahead, they risk loosing their competitive edge and may loose out to traditional banks that have already developed large, well-established customer bases and have access to increased data as a result.
FR: How do you see regulation and technology continuing to change the financial services industry and how can brokers, lenders and clients adapt?
Typically, when a new financial institution is in the process of being set up, its founders are operating on a very tight budget, with a small headcount, and it takes a great deal of time, as well as due diligence and security checks to obtain an official licence. By using outsourced IT solutions providers, firms can be confident that they have the expertise on hand to guide them through the minefield which is regulatory compliance from an IT perspective, this will allow them to add value to the end customer’s operations.
Advancements in technology, including the proliferation of cloud-based solutions, has seen the financial services industry evolve in recent years, and begins to embrace innovation, hot on the heels of industries ahead of the digital curve such as a the retail sector. This has however increased the need for firms to integrate legacy systems with new solutions.
Currently, it is very difficult for off-the-shelf IT solutions to meet the FCA’s full requirements, as one size simply does not fit all.
As more lenders move to upgrade, particularly to cloud-based solutions, integration and security can still remain a risk. The reputation of a bank and the whole industry relies on providing customer confidence in security, and the rapid adoption of more agile, bespoke technologies can bring a layer of complexity. Until liability is accounted for, firms should consider these moves carefully to ensure their customers see the benefits.
FR: What other changes do you expect to see in the market over the next 12 months?
As challenger banks continue to establish themselves in the market, and traditional players strive to compete, we can expect the next year to bring more innovation and change into the financial services industry. Partnering and leveraging technology is the key to success – it is the continual evolution of thinking that brought challengers into this space in the first place.
I believe the focus on the customer will continue to be paramount for all lenders. Financial services will have to juggle accurate decision-making, convenience, rapid response and affordability. We also recognise that increasingly technology-savvy consumers are bypassing traditional channels and opting for loans from alternative sources such as peer-to-peer lenders instead. One reason for its success is that it allows a firm to sell itself on its affordability by targeting consumer borrowers and positioning lending as a cost-effective alternative to other sources of finance.
“We can expect industry leaders who drive innovation, such as PayPal and Apple Pay, continue to disrupt the banking industry, and could see greater collaboration between them and traditional lenders in a bid to bring innovative and trustworthy products to market.
It is clear, the sharing economy is thriving. Highlighting this, PwC recently predicted that P2P lending will swell to $150bn by 2025, from $5.5bn in 2014. Of course rapidly-growing companies driving digital disruption will play a part in this, including the hotly discussed Uber and Airbnb. Included in the sharing economy are the peer-to-peer lenders who are internet and mobile technology to create unique marketplaces. With these lenders now having access to personal data and the information being shared across the internet, there is a growing need for these lenders to secure their platforms, and ultimately foster trust with their customers.
