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.
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."
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?
- Cheltenham & Gloucestershire
- Lloyds TSB Scotland
- Intelligent Finance
- 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