by Hans Tesselaar, Executive Director at BIAN
Once again the spotlight is on the UK’s banking industry and the need for greater competition. George Osborne used his annual Mansion House speech to renew his commitment to promote more competition in retail banking; while a report from the Parliamentary Commission on banking standards also came out this week, looking at the state of banking competition.
Recent years have seen the UK retail banking market change significantly. For one thing, we are seeing new market entrants for the first time in decades; the likes of Marks & Spencer, Tesco, ING Direct and Metro Bank have changed the face of high street banking. The other significant change has been in consumer attitudes. Post-2008, banks have suffered from record low customer loyalty; with the account-switch deadline on the horizon, making it easier for customers to switch their banks, this is a problem that will only get worse. It is certainly easy to see why competition in banking has climbed up the agenda — and as the Government puts increasing emphasis on levelling out the financial playing field, this market is set to continue evolving.
For the more traditional banks, it is imperative that they do all they can to appeal to the customer. This is difficult when going up against the newer market entrants. Challenger banks are making an impact as a result of their improved customer service, more innovative offerings and competitive pricing, all of which have obvious appeal — and are significantly supported by the fact that these new players are unhindered by the creaking legacy systems which restrict traditional banks. They are the new banks on the block and they bring with them shiny new IT systems.
For traditional banks, IT system renewal is the problem that won’t go away. Costly to renew and volatile when upgrading, banking technology continues to represent a barrier to innovation. Recent statistics from Intellect, an organisation representing the UK technology industry, show that at present only 4% of total bank IT budgets are being spent on innovative non-regulatory changes and upgrades. While old banks plug the vast majority of their IT budget into patching up their struggling systems, newer banks are free to focus IT budgets on innovative and exciting new products geared up to serve the Gen Y digital customer.
Mobile banking, innovative cashless payment solutions, tailored customer service — consumers are increasingly demanding their banks offer more services. But how can traditional banks, shackled by their legacy systems, achieve the flexibility needed to offer these — and ultimately gain ground over their new counterparts?
I have long argued for the industry-wide adoption of open banking IT standards as the key to helping banks to re-allocate their IT budgets from ‘Run the business’ to ‘Change the business’. The fact is that the emergence of new banking players need not signal the end for high street banks, rather it should act as a call to action. The retail banking market is only going to become more competitive and the only way longer-established banks can remain relevant is with fundamental changes to their core systems. These old dogs need to start learning new tricks.