“An alternative to the traditional dominance of the large retail banks is rapidly taking shape in the form of the new challenger banks like Tesco, Metro and Aldermore amongst others. One of the principal advantages the newcomers have is that they are not weighed down by legacy IT systems and can be nimble and flexible in terms of the services they provide, since they can adopt and implement modern systems that have been created to provide a service that reflects how customers do business with their banks today.
For example, because these challenger banks are being built from the ground up – and with the current technology landscape in mind – they can facilitate transactions via any channel, at any time, from any location, in the manner in which the customer wants to do business.

However, mainstream banks are waking up to the threat that these challenger banks represent and are therefore adopting a new more flexible and responsive approach to initiating and servicing relationships with their customers that doesn’t involve ripping and replacing their underlying product systems.

Tesco, for example, recently launched an ‘online only’ current account, which not only meets the needs of today’s internet savvy consumers, but also provides the company with an easy way to keep an accurate record of all customer interactions. Armed with this information, Tesco can then turn that oversight into valuable analysis that can be leveraged for business growth and internal problem solving.

As a result, this type of account should help Tesco to reap dividends both in terms of exploiting business opportunities within the customer base in the future, whilst also maintaining a high quality level of customer service. However, under the covers, there is still a core banking system that is capable of keeping accurate and secure records of the transactions of the individual account holders. The art, therefore, is in optimising and tailoring the layer that sits between that core system and the staff or customers who are at the sharp end of the business.

After all, changing and updating underlying legacy banking systems just isn’t an option for traditional high street banks due to the time and expense involved. As such, some banks are taking the alternative approach of inserting a processing and servicing layer between the older record keeping systems and the staff and customers who need the greater flexibility and speed of response.
Whilst their implementation may look very different to that of the challenger banks ‘under the covers’, the end result and experience for the customer will be the same as that of the emerging banks. However, even though the technology is there to support this approach, it remains to be seen whether the culture and acceptance of change of the traditional banks will universally embrace this new way of doing business.

In particular, the large IT departments that support the major banks will need to change their mind set from thinking about projects in terms of many years to implement, to being able to react and implement within a few months. Ultimately, this will be the most significant challenge for some of them.”