IBS Journal February 2017
25
He adds: “How long before the market recognises that FinTechs are simply more efficient at doing banking than listed banks, especially when it comes to utilising technology for market growth and customer acquisition? The neo-banks and tech payments networks have proven you just don’t need branches to acquire customers or deposits, and traditional retail banks won’t compete on the same basis.”
Not everyone has been bowled over by these ambitious young upstarts, however. The founder and chairman of UK challenger bank Metro Bank, Vernon Hill, recently dismissed talk of revolution as “all hype”, arguing we have yet to see a digital-only player that has succeeded in the US or UK.
Certainly, attracting new customers and encouraging people and businesses to look outside of the establishment is still a key challenge for newcomers. Banking franchises have been threatened on various occasions over the years, with telcos, retailers and supermarkets looking to dip into their wallets, but thus far no one has achieved a major breakthrough. Recent research, for instance, showed that Brits are more likely to get divorced than switch bank and 96% of businesses seeking a loan in the UK go to their business current account holder as their first port of call. When you consider that the Big Four UK banks hold 83% of SME market share between them, this puts them at a huge competitive advantage.
How, then, to carve yourself a lucrative niche? “The only successful way to disrupt is to be customer focussed. Disruption for disruption’s sake never goes down well,” says Karen Rudich, Chief Operating Officer, Bank in the Box. “Write a strong business case to disrupt the status quo accompanied by data on how it will positively impact the customer and all of a sudden, people start to take notice. It is a myth that large established banks don’t do innovation. Innovating at the right time is the key reason why many of the big banks are still in business. Always think about the customer, evolve with changing expectations and anticipate their needs before they even know about it themselves.”
Getting it right
OakNorth focuses on the SME sector. It uses a variety of technology providers: at the back-end, it has deployed Mambu’s core banking system, as well as Sage and Almis. For the middle office, it uses Ncino, a CRM solution, and at the front-end, it has an in-house developed offering. It has also implemented Facebook Workplace for internal operations. In May last year, it became the first bank in the UK to have its core banking system fully hosted in the cloud, which it accomplished after several months of working closely with Amazon Web Services to drive the development forward with the regulator.
“We’re generally less concerned about attracting a large number of customers and more interested in attracting the right kinds of customers, building our loan book with high-quality deals,” says OakNorth Co-Founder and CEO, Rishi Khosla. “On the lending side, we have a very specific proposition – offering structured loans and revolving facilities to midsized growth companies and entrepreneurs. We deliver this proposition better than the big banks which is why we’ve been able to gain market share from them and grow our loan book to £300 million with a further £500 million in the pipeline. Other new banks are doing the same in different niche areas (e.g. mortgages, current accounts, etc.) so as long as they’re able to present a proposition that genuinely ‘challenges’, they should be able to attract the numbers they’re looking for.”
OakNorth lines up alongside a number of Brits who have been dominating the challenger bank sector. The country boasts way more new entrants than any other. Notable recent developments include mobile-only venture, Atom, officially opening to all customers. It was founded by Mark Mullen, former CEO of first direct and Anthony Thomson, who created Metro Bank, and had previously been in “invitation only” mode, with its iPhone and Android app available to customers who had expressed interest and been given a registration code.
Atom’s products currently include two fixed saver accounts and SME lending through intermediaries, while
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