Opportunities everywhere for new entrant bankers, or are they?
Appeal from New Banks Limited in the UK
The reshaped UK retail banking landscape has created new opportunities for potential entrants to exploit. Scale is no longer everything. In the decade before the banking crisis, the economics of banking forced retail banks to reduce costs, often through greater scale and efficiencies. Large incumbents responded to the spread squeeze in part by driving increasing volumes of transactions through their cross-selling systems and products.
This environment made launching a new banking business extremely difficult. Therefore, the new entrant banks today have tended to be those linked to other financial institutions, such as Egg or Standard Life Bank, or foreign players, in particular Santander through the acquisition and ING Direct through its successful operation. online deposit collection.
The high margins associated with retail banking staples have created a way for smaller players to build a foothold in the market while building profitable businesses early on.
political media
The political climate is also in favor of new entrants. All political parties have said they want to see more competition in UK retail banking and are fully committed to encouraging the establishment of new competitors. This new impulse is influenced by political considerations, but also by the real need to satisfy the credit needs of families and companies. The EU also wants to see more competition in the UK banking market and, as noted, recently required RBS and LBG to sell off assets as the price for government state aid.
Regulators, as well as the Bank of England, would initially welcome more competition and the provision of additional capital in the banking system, although this broadly positive view may be tempered by understandable caution around the operational level when considering new applications.
The role of the new regulator is central to the process of new entrants to the UK banking market.
New differentiators
Financial disaster and bouts of misselling have given newcomers the opportunity to differentiate themselves for reasons other than price. A new approach to service and products is likely to end up being an essential requirement for those wishing to enter the UK banking market.
No post-crisis hangover
Even the strongest within the established banks have gone through a long period of challenges and are therefore busy reshaping and monitoring their balance sheets. Elements of the sector also face the distraction of considerable corporate restructuring and government intervention.
Start-ups, totally free of these deviations, will therefore be able to pay attention to building their business and providing credit in a much post-crisis context as an alternative to dealing with the aftermath of the crisis. A banking market saddled with some negative public perceptions, legacy systems often unwieldy, the aftermath of financial collapse, and a dearth of new credit to meet demand should provide fertile ground for newcomers. However, it will encounter significant hurdles for participants to overcome, including the new “challenge sessions” the regulator has introduced for new license applications.
tech blips
Technology is better today than it was five years ago, but it’s far from perfect. The high fixed costs of working with the systems and infrastructure needed to handle complex products including checking accounts and mortgages prove to be the undoing of many business cases. Unless you can purchase an existing bank for your technology platform, a potential new entrant has two main options for obtaining the required platforms:
- Try to find a service from an external provider.
- Purchase a platform for self-deployment that originates from a platform provider.
However, each route has its challenges considering that the market for platforms that support UK banking regulations and practices is simply not yet mature. This is particularly true of current account systems, which are likely to end up being an integral product for most organizations hoping to enter UK retail banking.
Challenges for challengers
The biggest significant challenge for new banks will be finding the right people with the right experience to run the new bank, as well as convincing regulators that they have the right competencies. Those who appoint status-driven CEOs will have their boardroom filled with assorted risk-takers and specialists to “support” them within their CEO role; these wage demands will undoubtedly be what cripple new banks, even if the rest of their business design is feasible. .
