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Opinion: Banks face up to digital shift - but change is just beginning

Matthew Finnegan | Nov. 3, 2014
Lenders are in for a fight as wave of new competitors threatens to disrupt financial services landscape

There is also a potential challenge from a wave of new competitors entering the UK banking market, as the government attempts to spur more competition by lowering the barriers to entry.

The big banks have typically been shielded from innovative new firms for a number of reasons, such as the cost of starting up a new bank. But following changes to legislation, such as equal access to payments systems owned by the big players, new 'challenger' banks are applying to join the market.

While Metro Bank, the first new high street bank in over 100 years, was perhaps too early to truly capitalise on the flexibility offered by technologies such as cloud and mobile, those entering the market now will have better access to shared platforms.

Atom Bank is one of these preparing to launch, while former Allied Irish COO Anne Boden has revealed details of a 'mobile only' bank. Former IT worker Nazzim Ishaque has applied for a licence for Lintel Bank, which he promises will focus on online services and "cutting-edge" technology, theFT wrote this week. These are just some of the 25 start-up lenders awaiting approval from the Prudential Regulation Authority.

What joins these banks is a strong digital focus, with the potential ability to quickly launch products that offer customers value - such as location-based services or using analytics to provide personalised recommendations.

What matters more - size or disruption?
Of course it is unlikely that these newcomers will attract large volumes of customers to move their full accounts away from the established lenders, or conduct large transactions such as offering mortgages. In fact, the likelihood is that many will not be interested in this, initially at least.

What they will be able to do is offer innovative services to attract a younger generation of customers that find the big banks do not suit their needs.

These, and perhaps the large tech firms, are likely to eat into the edges some of the big lenders business in the short term. But the real problems would come if a newcomer is able to firmly establish itself and start to really disrupt the big players.

What the big banks do have - in spite of the financial crisis - is customers' trust, as well as the financial clout to target innovation and adapt their businesses. Those that are unwilling or incapable to do this are in for a tough time.

Ultimately though, and as has proved in the past, it is likely to be the customer who benefits from the digital disruption.

Source: Computerworld UK


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