It’s easy to be critical of the branch-first strategy of
Metro Bank in the digital age, but listening to Anthony Thomson at the launch of Fiserv’s new
Agiliti system gives one a more sympathetic perspective. The cumbersome
regulatory process cost the bank millions; the payments system was jealously
guarded by the existing high street banks; and the capital requirement was
huge, even at a time when the industry was gasping for collateral.
If the bank had launched in 2007 when it was conceived, it
might just have been a sensation, gaining extra momentum with each successive
failure of the likes of Northern Rock, Bradford & Bingley and the rest.
However, while it was slogging through the licensing
process, smartphones and tablets took off. In 2007, ‘it was a different world,’
Thomson said. ‘The way to create a better customer experience then was through
physical location.’ But by the time it had overcome the barriers to entry in
2010, the branch-based concept was already obsolete. While still claiming that
Metro Bank was right for its time, Thomson added: ‘The pace of change by 2012
was extraordinary, to the point that, in 2014, building a bank with branches
would be like BT putting telephone kiosks back in the high street.’
One can still point out the systems deficiencies in the
Metro Bank launch. No matter how strong the belief in the importance of the
branch, launching without internet banking borders on the negligent – and that
applies equally whether it’s 2007 or 2010. It still doesn't have a mobile app,
despite promising one last year. But it has still garnered around 300,000
customers and has attractive branches with convenient service.
Moreover, Metro Bank has done the industry a favour. By demonstrating how difficult it was to launch a bank (it was, of course, the first to do so in a century), it added to the political will to tilt the system back towards new entrants. The fact that there are now close to 30 applicants for a UK banking licence is testimony to how much the landscape has changed.
The question then moves to what the applicants intend to do
with these licences, which under the new process should take no more than six
months to be granted. Some of these are likely to be international banks with
no UK presence, some will be more or less single product propositions (online
savings, for example) but some will be retail banks like Thomson’s new venture,
Atom Bank.
Despite a recent report from the Social Market Foundation
suggesting that more choice of similar products may not equate to more
competition, Thomson believes the landscape is becoming more diverse. ‘Wonga,
arguably, introduced competition into a new part of the market. P2P lending is
also adding competition. There will be new banks, quasi-banks and others that
just create more competition in every way.’
However, it may be tricky for Atom Bank to stand out. It
will be starting from scratch without a big brand such as Tesco or Virgin,
without as much scope to offer current accounts as loss-leaders, and without
the hype of Metro Bank. Thomson’s answer is that Atom Bank will deliver a
seamless, instant digital experience where the consumer wants it to happen, for
which the technology is key.
‘The existing banks can build a beautiful front-end. But
this is plugged into a pig of a back office system,’ he says. While undoubtedly
true, it is the beautiful front-end that the customer sees. This allows a bank
like Barclays to casually describe itself as a ‘leader in mobile banking
innovation’, as it did ahead of the launch of Paym.
Thomson counters that just because existing banks have
spruced up front-ends doesn’t mean they can exploit them properly. ‘Banks don’t
have a single customer view. They don’t have the ability to do the data
analytics and the predictive modelling to make your experience better,’ says
Thomson: the extent to which a new bank could to exploit predictive modelling
will be interesting to see.
Thomson also states that ‘the difference will be the
functionality and the fact that it works seamlessly.’ So it remains to be seen
what Atom Bank can conjure up, bearing in mind that the model with Agiliti is
that it will purchase modules around essentially vanilla retail banking
offerings. Agiliti has Fiserv’s IBM iSeries-based Signature core
system at its centre, which one source recently described to IBS as ‘safe but
unexciting’. The question of how much a user can customise its offerings was
raised at the launch event and while products can be parameterised, the
suggestion is that Atom Bank will innovate on top of Agiliti rather than within
it. And perhaps the underlying technology of a system is less important when
you take it on a Software-as-a-Service (SaaS) basis compared to a
licence.
There is a related point, however, and one which contradicts
the former Metro Bank philosophy even more. Whereas the latter believes that a
customer will forego the best interest rates for better service, it might be
that value is a key part of the Atom Bank proposition. It will have a
cost-income ratio of below 30 per cent, which Thomson thinks is close to half
that of existing banks. ‘With Atom Bank, because it’s a mobile bank, based in
the northeast of England, our cost income ratio is low. Not only will we
provide a better customer experience, we will offer market leading products,’
he claims.
This is easier to understand. Starting with a clean
technology slate, a pay as you grow model, no bad debts or miss-selling scandals
and a regulatory tailwind, Atom Bank and other new entrants should be able to
give the current banks a run for their money.
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