I recently had the good fortune to grab 30 minutes with the COO of one of the UKs new breed of challenger banks. They kindly shared their thoughts on the state of the nation, plans for growth, future developments and their 100% cloud only business model. The striking take-away was their agility and ability to innovate at lightening speed with laser focus on the customer experience.
It is a far cry from the situation the more traditional banks find themselves in, dealing with legacy on-premise solutions often hand crafted by large IT departments, huge change management departments needing to agree to every amendment, risk and compliance teams needing signatures in triplicate and managers fearful that change will mean loss of jobs for their teams.
The net effect of all of this means greatly reduced speed of innovation. What a challenger bank can do in a couple of days (from receiving customer feedback on an enhancement idea through to a new feature designed, built, tested and implemented) a traditional bank would take months to complete, cost millions, and probably fail to get delivered because by the time it hits their app or website it’s been superseded by another requirement.
Obviously offering a single product in a single regulatory jurisdiction brings with it a more simplified model than the larger global banks can ever hope to achieve. Not having to handle the complexities of regulation in the multiple geographical regions also means layers of cost and complexity can be avoided. Combine all of these advantages with the “can do” attitude of a start-up where no jobs are at risk through some potential restructure and it puts the challenger in a very strong position indeed.
The potential headwinds to the challenger will be felt as they scale to multiple products in multiple jurisdictions across multiple geographies and cultures. Remaining agile and nimble needs forethought. Throw in a few mergers and acquisitions along the way and these challenges will no doubt surface but all the time the challengers remain unencumbered by these shackles they are grabbing market share with customers not prepared to put up with the lack of innovation from their traditional bank.