The redrawn landscape of UK retail banking has generated new opportunities for potential entrants to exploit. Scale is no longer everything. In the decade preceding the banking crisis, the economics of banking forced retail banks to drive costs lower, often through increased scale and efficiency. The big incumbents responded to margin compression partly by driving increasing volumes of transactions through their systems and cross-selling products.
This environment made the launch of a new banking business extremely difficult. New banking entrants nowadays have therefore tended to be those attached to other financial institutions, like Egg or Standard Life Bank, or foreign players, most notably Santander through acquisition and ING Direct through its successful deposit-gathering online operation.
The raised margins attached with core retail banking products have created a way for smaller entrants to create a foothold in the market while writing profitable business from the start.
The political climate is also in the new entrants’ favour. All political sides have said they wish to see more competition in UK retail banking and have absolutely pledged to encourage the establishing of brand new competitors. This new impetus is impacted by political considerations but is also driven by the real need to satisfy the credit needs of households and businesses. The EU also really wants to see more competition in the UK’s banking market and, as noted, has recently demanded that RBS and LBG sell assets as the price for state aid from the government.
The Regulators as well as the Bank of England would in principle welcome more competition plus the provision of additional capital into the banking system, though this broadly positive view may be tempered by understandable caution around the operational level taking a look at new applications.
The new regulator’s role is central to the process for new entrants in the UK banking market. receptek
The financial disaster and misselling episodes have provided newcomers with an opportunity to differentiate themselves on grounds other than price. A fresh approach to service and products is likely to end up an essential requirement for those wanting to enter the UK banking market. izomautok
No post-crisis hangover
Even the strongest within the incumbent banks have been through a long period of challenges and therefore are occupied by reshaping and monitoring their balance sheets. Elements of the sector also face the distraction of considerable corporate restructuring and government intervention. skyemetalcoating
Start-ups, totally free of these diversions, will therefore be able to give attention to building their business and providing credit in a very post-crisis context as an alternative to handling the aftermath of the crisis. A banking market burdened along with some negative public perceptions, often unwieldy legacy systems, the aftereffects of the financial meltdown and a shortage of new credit to fulfill demand ought to be fertile ground for newcomers. However, you will find significant hurdles for the entrants to overcome, not least the new “challenge sessions” that the regulator has introduced for new licence applications.
Technology – is better today than five-years ago, yet not perfect by any chalk. The high fixed costs for working with the systems and infrastructure necessary to handle complex products which include current accounts and mortgages happen to be the ruin of a lot of business cases. Unless it can buy an existing bank for its technology platform, villanyt-szerel a potential new entrant has two main options for obtaining the required platforms: zarban
- Try to find a service from a third-party provider.
- Buy a platform for self-implementation originating from a platform vendor.
However, each route has its challenges considering that the market for platforms that support UK regulations and banking practices is simply not yet mature. This is particularly true of systems for current accounts, which are likely to end up an integral product for the majority of organisations hoping to enter UK retail banking. epit-esz