Business Technology

The five challenger banks focusing on IT to stand out in the retail crowd

8 min read

17 September 2015

With technology seemingly having changed the retail banking industry for good, we took a look at five challenger banks which gained banking licences and focused on technology in an attempt to beat the larger competition.

Research in January 2015 from the CBI and PwC pointed out that the majority of finance companies plan to increase investment spend on IT and marketing as competition and technology change the nature of the sector.

And with four out of five UK consumers claiming they would trust challenger banks with their money if they had the right IT infrastructure, it’s no wonder that technology has become the current differentiator of the industry.

Take, for example, Britain’s first new retail bank in five years – Fidor Bank. It has only just launched in the UK, having been founded in Germany in 2009, but what makes it so unique is that its banking model is based around its online community.

Users are financially rewarded for giving and receiving financial advice, as well as reviewing financial products. Fidor also invites members to help build the bank’s future services, including the chance to name its upcoming debit card, as well as suggest new functions and features. Furthermore, for every 2,000 “likes” the bank gets on Facebook, it reduces its loan interest rate by 0.1 per cent.

Essentially, Fidor Bank uses social media to overcome the cost and complexity of traditional banking, while increasing customer trust through an online community.

The concept of an online-only bank is nothing new, but few had a banking license. Recent months have seen a spate of new banks granted licences, with others going through the process of getting approval. This is significant when you consider that Metro Bank in 2010 was the first firm to be granted a banking licence in 150 years.

Read more on the banking industry:

Digital bank Starling, which was set up by former Allied Irish Bank banker Anne Boden, is getting a full licence at the end of 2016. She may not be hoping to be a social media-inspired bank, but her concept is just as innovative – launching an iTunes-style bank.

According to the Irish Times in November 2014, she said: “The music industry has been transformed by iTunes, retailing by Amazon, but banking hasn’t changed its approach in a long time. The same simple services traditionally offered in branches have just moved online and into apps. Empowered, tech-savvy consumers want and deserve more from their banks – they want easy, intelligent banking, not just mobile versions of paper statements.”

Boden explained things are changing as UK regulators have amended rules to enable new entrants to compete. She said: “Finally, the technology behind all the best internet platforms can be brought to banking, allowing us to create a digital banking service that’s truly personal to each customer.”

Although internet giants like Google and Amazon will not offer banking services, the companies will disrupt the sector through other services that take consumers away from traditional banks, according to a recent report from Forrester. For example, Ireland’s central bank approved Facebook as an e-money institution, which will allow it to offer consumers the ability to store money and pay others.

Read more about the app-style bank launched by the former chairman of Metro Bank, and the company set on using the cloud.

Following its regulatory approval, Atom Bank – which has spurred on a number of digital competitors such as Mondo – is set to launch in 2015 with its products and services delivered through an app. 

Digital startup Mondo aims to follow in Atom Bank's footsteps to overhaul British banking

The bank’s head of IT, Stewart Bromley, said that because Atom was designed for an app rather than a branch, it would be fundamentally different to traditional banks.

Atom Bank founder Anthony Thomson, the former chairman of Metro Bank, told low operating costs at the bank may result in financial benefits for its customers.

The bank’s website explained: “We think customers want value for money, with service at the touch of a button. A bank that’s fair and transparent, that acts in the best interest of its customers. One that really doesn’t act like a bank at all.

“And we’re digital, because we believe technology makes life easier and puts you in control. It can even bring people closer together.”

Lintel has also started applying for a banking licence. The bank describes itself as: “A helpful, different and better bank, currently in the process of applying for authorisation from the Prudential Regulatory Authority and Financial Conduct Authority.”

Through online and telephone services, founder and former IT professional Nazzim Ishaque plans to mostly cater to the SME market – and will do see with speed. As the company plans to use an off-the-shelf core banking system from a third-party supplier, Ishaque has allegedly promised that it could open an account for a British citizen in just two minutes.

It suggested that user experience was the top priority. 

Ishaque also explained that the bank would be working with retailers to link accounts to loyalty programmes. “We want to enable automatic discounts at the point of sale.”

Last on the list, and using a completely different method, is private bank Hampden. Based in Edinburgh, it has decided to operate on a cloud-based platform from Oracle.

Oracle’s software will manage Hampden’s core banking, as well as direct and mobile banking operations. 

The managed service from Oracle aims to aggregate data from different sources to allow the bank to better understand customers and offer personalisation.

Hampden CEO Graeme Hartop said: “We view delivery of outstanding client service as a priority, which in today’s world needs to be supported by the best technological core banking platform available.”