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this will matter little in the medium to long term. Alex Weber, head of international markets at N26, states that, as banks have to maintain increasingly outdated IT systems and ever more costly branch networks, their product range will have to be refined, and they will have to focus on core competencies. This will mean traditional banks will become more specialised and it will be harder to find a traditional bank with an all-encompassing product offering, according to his predictions.
This shift is a result of the continuous unbundling of financial services that has occurred since the emergence of fintechs. Weber adds: “At N26, we have the vision to re-bundle these financial services through several partnerships with specialised fintechs. By partnering with the best-in-class fintechs, the end customer gets the best offering in every category of financial services.”
Chisell comments: “It tends to happen that the offerings we see in the market are unnecessarily large, and that might not be a deliberate action by traditional banks. At Starling, we tried to narrow it down and show you one balance, plus the tools and motivation to manage money.”
In Chisell’s opinion, challengers will always be a step ahead of traditional banks in some aspects. “When they want to catch up to us in terms of app capabilities, for example, we’ll already be way past that and onto the next offering for best customer experience,” he says.
In parallel to the current account service, Starling has been taking the partner route, and it facilitates access to a range of third-party products through its marketplace, so the user can pick the best mortgage plan, insurance, credit and so on. “This approach comes from my experience working at eBay!” says Chisell.
Ge Drossaert, CCO and board member at Fidor, highlights the relevance of Fidor’s own marketplace, in which it has more than 50 fintech partners to meet the customer financial needs. “As an example, customers have access to bitcoin trading, crowdfunding or lending projects, they can purchase insurance, use financial tools at their disposal, buy gold and much more,” he says.
This is what Fidor calls the ecosystem model: “We believe that banks and aspiring banks need to adopt such an ecosystem model if they want to continue flourishing in today’s competitive space.”
Digging into the core
What do we find when we look at the technology that the bank will run on? Well, in terms of approach, it varies. Atom, for example, hasn’t restricted itself to picking just one system. According to Bromley, integrating one solution or another doesn’t make much of a difference, so they have given themselves the freedom to scout the market and pick and choose what they consider best. “Our strategy has been to always buy the bet-of-breed solutions,” he says.
“Both our front end, which is essentially our mobile app, and middleware, is built in-house, but the systems keeping it all together
Drossaert says that fidorOS seamlessly integrates the community as a module with high-speed banking capabilities for users to come together, discuss finances and transact in near real time. “Using our fidorOS platform, we created a digital banking ecosystem model,” he says. This goes back to the idea of creating an interconnected marketplace, as mentioned above.
Digital starts with mobile
The importance of mobile initiatives around these banks cannot be understated. While some challenger banks have enjoyed the spotlight
ourselves, so we could have control over every little change and issue
“
are supplied by third parties. When picking provider, we look for a firm that is a good fit for us, and that is based in the ability to work at a quick pace when integrating new features, and an appetite for innovation.” This seems to be a recurring theme. Whether it is bought from a third party or built in-house, challenger banks need flexibility and control.
However, flexibility is an end that can be reached via many paths, and the ‘pick and choose’ approach that Atom has is shared, partly, by N26. Weber comments: “We have built most parts ourselves and have broken down the infrastructure into smaller modules and microservices, working with some modern partners in certain aspects.”
Chisell talks about the more common route for building a system in challenger banks: “We built the whole system ourselves, so we could have control over every little change and issue. In the process, we have an obsessive focus on metrics and analytics, to develop each part according to the bank’s and our customers’ needs. I worked at Amazon too, and this philosophy was inspired by Amazon’s approach to avoid outsourcing whenever possible.”
When speaking to Clearly Bank’s Cunningham, it becomes evident that building a bank from scratch needs the ability to adapt and think on your feet. “We selected VaultOS, a core banking system by Thought Machine, as it could provide us with a flexible model able to support the requirements of a specific market – in our case, the Islamic market,” he says.
Fidor, similarly, uses the banking system that the group has developed, fidorOS. Speaking to Drossaert, we find that what they seek is not flexibility and control, but the ability to support a community, an approach to banking that is increasingly becoming a trend, as we have also seen it in other challenger banks. “Giving power to the consumer to control how their bank is run is something the big banks cannot do, and gives fintechs an edge,” he says.
We built the whole system
www.ibsintelligence.com | © IBS Intelligence 2018
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