The UK's banking sector is going through a seismic change as two
of the UK's biggest banks get ready to sell-off parts of their
businesses.
The government-owned Royal Bank of Scotland (RBS) and Lloyds TSB
groups are putting hundreds of high-street branches and financial
services business up for sale.
The move will clear space for three new high-street banks within
four or five years. Companies such as
Tesco, which has announced its plans to launch a bank, Virgin
which already has a finance arm, and Spanish bank BBVA, are among
the possible acquirers.
The new banks will have an opportunity to differentiate
themselves with innovative IT. They will be able to start again
with blank sheet, without being held back by their existing legacy
IT systems.
Commentators believe that the new entrants will replace large
traditional IT departments with outsourcing IT operations. And they
will invest heavily in social media to reach customers - an area
neglected by the traditional banks.
Main objectives
Mike Hampson, director at Bishopsgate Financial Consulting, who
previously headed up the transactional banking business of Dutch
bank ABN AMRO, says the main objectives for the new banks will be
simplification, quality of service and lowering costs.
"No banks are really being creative about the way the industry
is going," he says. "Outsourcing will give the banks the
flexibility to focus on customer needs and social media will help
them work out what the customer needs are. Banks today spend a long
time putting together services that they think customers want, but
not what the customer actually wants."
Claude Roeltgen, CIO at Luxemburg bank BayernLB, says that if
he was building a bank today from scratch, he would outsource as
much as possible.
"If you have a green meadow opportunity, outsourcing should be
considered for everything. In the 80s and 90s we had to build
everything ourselves, but now outsourced services have matured," he
says.
The bank CIO's role has changed. "It is more about finding the
best solution to the service you want to offer."
Today it is feasible for banks to outsource their whole
infrastructure. But outsourcing applications is more difficult
because we do not have the maturity yet, he says.
Peter Brudenall, lawyer at Hunton & Williams and outsourcing
specialist, says that banks elsewhere in the world are outsourcing
significant parts of their IT infrastructure. "There are banks in
the Middle East that are only a few years old that outsource about
80% of their IT and are almost virtual banks," he says.
And he adds that it is not just the CIOs role that will change,
but because of increased outsourcing the make-up of the entire IT
team will look different. "The banks will need to develop strong
relationships with suppliers. They will also need a dedicated
project management team to manage relationships."
Social media
Chris Skinner, chairman at financial services think-tank the
Financial Services Club, says the new banks
must engage with social media if they are to harness new ways
of providing customer services.
"There only seems to be one bank with social media and that is
First Direct. None of the main banks use blogging and social media
and I think there is a big opportunity."
Christophe Langlois, founder of social media consultancy
Visible-Banking, agrees there is an opportunity for the new banks
to differentiate through social media. "It is a great way to widen
your reach by getting into new markets and refreshing a brand."
He says if he was setting up a bank, he would harness existing
platforms through partnerships. These existing platforms include
smartypig.com , which
offers competitive savings accounts based on a clients goals, and
Mint.com, which is a money
management service based on social media. "The banks do not have
the expertise so it is better to form a partnership with an
established platform," he says.
He adds that although social media platforms do not integrate to
core banking systems, they can link to them. "Social media should
reach out to as many people as possible, but banks can capture some
of the people as clients."
For whoever buys the assets from the bailed-out banks, their
choice of technology could be a differentiator. As the world
becomes increasingly digitised, the new banks could function with
less staff and more IT.
What is for sale?
Lloyds TSB
- Cheltenham & Gloucestershire
- Lloyds TSB Scotland
- Intelligent Finance
RBS
- RBS-branded branches in England and Wales
- NatWest branches in Scotland
- Customers, staff and supporting infrastructure
- Insurance businesses Direct Line, Churchill and Privilege
- Green Flag and NIG