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Striking a fine balance between innovation and stability in banking technology – Pike

by: Richard Pike, Phoebus Software
  • 23/09/2019
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Striking a fine balance between innovation and stability in banking technology – Pike
It has been more than six years since the challenger bank movement gained real momentum.

This was when the Prudential Regulation Authority (PRA) set up its New Bank Unit, designed to assist those looking for a banking licence to navigate the application process in a more streamlined and cost-effective way. Prior to this, Metro Bank was the first bank to receive a licence in more than one hundred years when it was authorised in 2010. 

The government’s driver for creating challenger banks was the apparent monopoly the big four banks had; a monopoly blamed partly as a cause of the credit crisis in 2008. The government also wanted more consumer choice and diversification, encouraging the upsurge in specialist banks.

No doubt this has been achieved, but perhaps not to the scale originally envisaged. For example, current accounts are not yet a mainstream product of most challengers, whereas mortgages and savings are the norm in nearly all instances. 

Most new entrants have been successful, particularly with technological innovation. Take Atom Bank as an example, the first mobile-only bank in the UK, demonstrating what could be achieved using technology. But as we all know, as soon as something new is launched there will always be someone trying to better it. There have been further examples of fantastic use of new, innovative technology by challenger banks seeking to achieve improved customer acquisition and customer interaction.   

However, data from compliance experts FSCom in June reported that just four banking licences had been granted in the previous year, compared with 14 the year before, despite the number of applications having remained largely the same. Could this be a symptom, not only of concerns over risk management, but also some technologies, suggested as part of the licence applications, not being robust enough? 

Those that have successfully launched since 2014 may need to re-evaluate their requirements for core accounting and servicing platforms as their technology ecosystem evolves. We are definitely seeing more requirements to implement platforms such as Phoebus within some very innovative technology stacks.

What this means is that an institution can have a proven, established and robust back office solution as its core engine. Then by using application programming interfaces (APIs), integrate with a multitude of innovative solutions to gain a unique selling point over its competitors. APIs have been the main focus of Phoebus’s research and development spending over the past few years.

Increasingly, customers are as interested in technology as they are rates. As the open banking movement gathers momentum and general consumer expectations continue to increase, this desire to continually evolve the ecosystem with new technologies and applications will only intensify. There is obviously a balance to be struck between innovation, which we all encourage, and proven technology that the regulator, amongst other bodies, deems appropriate for the banking sector. Time will tell who will be successful or not and how that success is actually measured. 

One thing for sure is that the challenger banking movement has been a driver for more customer choice as well as raising the bar. It has refreshed the traditional banks’ attitudes towards modern day customer expectations for day-to-day interaction. However, moving forward, more of a balance may need to be struck between completely re-inventing the technology wheel and using the more well-established platforms, with aspects of customers’ experiences facilitated by innovation.               

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