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NEWS Watch and learn
When it comes to IT, incumbent banks can learn a lot from digital-only new entrants, but are their hands tied due to legacy systems and past indiscretions?
Senior Editor Scott Thompson
to the right…Banks are overwhelmed with regulatory- driven change, the sins of the past and legacy systems to the point where they are unable to think outside of the box enough to evolve their business models. Competition is not only coming from FinTechs and the likes of Moven, Simple, Atom and N26, but also tech giants such as Alibaba, Google and Apple. Or so the ‘digitally savvy newbies are turning the banking world upside down’ argument goes.
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“FinTech banks like Atom, Simple and ourselves at Moven, are now consistently able to acquire customers at 1/20th of the cost of chartered banks who rely on branch networks,” says Brett King, Founder, CEO, Moven. “Alipay and Wechat are acquiring deposits at 1/100th of that of US banks. Name a major retail bank that has been able to build a middleware and cloud-based core system, deploy mobile, wearable and online channels, and acquire hundreds of thousands of customers for under $25 million consistently. Simple, Moven, Atom and N26 have between them less than 700 employees, but have successfully deployed retail banking capabilities in 23 countries.”
Yet every challenge brings an opportunity to succeed. Incumbents still have the vast majority of customers on their side, and the more promising disruptors are years away from gaining any measurable market share. And one might argue that FinTech is nothing new. The banking sector has seen hugely important innovations in the past, such as credit and debit cards, ATMs and online/mobile banking. These made a big difference to customers’ lives, but they did not dislodge the big hitters. They adapted and thrived. What, then, can they learn this time around and
www.ibsintelligence.com © IBS Intelligence 2017
hallengers to the left of them, challengers
apply to their own banking systems and processes?
“By working with incubators, accelerators, acquiring FinTech companies, and investing in new banks (like BBVA did with Atom), large banks can benefit from innovative new products and services at a lower cost than it would take to develop them themselves,” says OakNorth Bank co-founder and CEO, Rishi Khosla. “This is because one of the biggest challenges facing the UK’s incumbent banks is legacy IT. They have complex core systems that have been patched together over decades, and rely on old processes that are inefficient and prone to failures. These large, physical entities require millions of pounds a year to be kept running and perform basic banking functions. So while the incumbent banks could learn a lot from new banks when it comes to IT, what they can realistically implement is quite limited.”
New entrants, of course, have their own set of challenges to overcome. These can be seen as falling into two main groupings – in the UK, one includes larger and slightly older organisations such as Nationwide Building Society, Virgin Money and the supermarket banks. The other comprises the newer, technology- based banks such as Atom, Monzo and Starling.
2017 will be a significant year, observes Anthony Duffy, Director of Retail Banking in UK & Ireland at Fujitsu. The first grouping – well-established businesses with track records of delivery – will be looking to broaden and deepen established market positions. The latter – startups, with little commercial footprint – will be seeking to launch/grow operations. “Over the year, the
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