UK startup harnesses technology to compete with high street banks

Online startup, awarded banking licence, can now target customers of traditional banks

Online banking startup Charter Savings Bank has been awarded a banking licence, meaning it can now target customers of traditional UK banks.

The new bank, which is part of Charter Court Financial Services (CCFS), will focus on savings.

Following the granting of the licence by the Prudential Regulation Authority (PRA), Charter Savings Bank will launch an online savings account early this year.

Like other challenger banks, new technology enables Charter Savings Bank to compete with existing banks without the need to invest heavily in bricks and mortar, through online services. 

It also gives them an advantage in being able to adopt modern technology compared to traditional banks that are held back by legacy IT infrastructures that are costly to maintain and not designed to work with modern technologies.

“The online and telephone based proposition, which removes the cost associated with a physical presence on the high street, is set to launch early 2015 and will be a UK bank for UK savers,” said a statement from the bank.

CCFS CEO Ian Lonergan said: “We see the development of a retail banking proposition as a logical extension for our business, enabling it to diversify into new markets and build a sustainable and competitive business model for the future. Being granted this licence by the PRA demonstrates the strength of our offering and the ambitious plans we have to champion savers and help them realise their financial goals.”

UK regulators are eager to introduce competition in the banking sector and there are currently applications licences with regulators from new challenger banks.

These include Germany’s Fidor Bank, which has applied for a UK banking licence. The UK launch of a Web 2.0 and social media-based bank, which currently operates in Germany and Russia, is imminent said the company’s CEO.

The bank uses social media to overcome the cost and complexity of traditional banking, while increasing customer trust through an online community.

As new banks lead with the latest and greatest technologies, traditional banks will have to invest in new technologies or risk loosing customers. Without that competition, retail banks will only modernise when their legacy systems collapse, or if regulators force them to change.

A recent survey of 2,000 people by banking software supplier Fiserve found that 80% of people would trust a bank if it had the right technology in place. Over half (56%) said a new bank would have an advantage over rivals if its IT was reliable.

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