Challenger bank Lintel Bank has applied for a UK banking licence with plans to join a growing group of banks taking on the high street incumbents. The challenger firms are using the latest technologies to support niche products and eat into the established retail banking giants' market share.
In stark contrast to the way traditional UK retail banks have grown, Lintel is planning to use off-the-shelf software and IT services to make sure all its IT components can be easily replaced if better alternatives emerge.
Although it will not be following the IT footprints of existing banking giants, it is emulating the Bank of America, which started life providing banking services to early Italian immigrants in the US. Lintel is initially targeting migrant workers and students in the UK. It plans to build an IT platform using technologies that can be quickly and easily replaced with the latest IT when better alternatives are available. One of the major criticisms of traditional banks is their inability to replace legacy systems quickly and at low cost.
The bank is the brainchild of Nazzim Ishaque, engineering graduate and owner of private equity firm BriceAmery. He has also worked for Royal Bank of Scotland, Lloyds Bank and JP Morgan.
Read more about challenger banks
- Computer Weekly looks at six challenger banks and their use of IT to differentiate themselves from established high-street banks.
- Here are six IT companies that are shaking up retail banking.
- For the first time, customers of the big five banks – Barclays, HSBC, Lloyds, RBS and Santander – and Nationwide building society will be able to use information from their statements to compare all personal bank accounts on the market to see which one is best for them.
Business model geared to overseas visitors
Ishaque believes the bank can have an infrastructure set up for less than £10m with a similar amount needed for initial regulatory compliance, which will increase as the bank grows. It will start with four branches in the City of London, which will double up as events venues.
Lintel will offer overseas students and migrant workers the opportunity to set up a bank account quickly, with most of the process including checking personal information completed before the person arrives in the UK. As well as paid-for current accounts it will also offer money transfer services, personal loans, SME loans and mortgages.
“We start the process off before people come to the UK,” said Ishaque. “We know all about them and make it easy for them to open an account.” He says a bank account can be opened in two minutes once the customer is in the UK with proof of identity such as driving license and passport.
Ishaque said the initial customer base could be around 50,000, based on government figures on the number of migrant workers and overseas students in the UK. These groups need UK accounts quickly to enable salaries and student allowances to be paid in.
The bank’s customer base could expand beyond just serving these groups, as the Bank of America did. The bank will have relationships with organisations that work in the migrant labour and student support sector, as well as with large businesses that bring staff to the UK from overseas.
Technology strategy of no development
While the bank is still in need of more funding and experience at board level, its IT strategy is clear. “Technology is everything. Without it we do not have a bank,” says Ishaque.
The bank does not want to go down the route of the traditional retail banks in developing software in-house, but will buy off the shelf. Ishaque says: “We do not do development. When new technology comes along we will replace our existing IT.”
Lintel plans to have its primary, secondary and disaster recovery datacentre sites hosted by TeleCity, which has latency between three sites of under 2 milliseconds.
It will use HP solid-state storage. Ishaque says the bank chose HP because it gives it the ability to configure. “With HP you can fix it yourself and the warranty will still be valid – but with other major vendors you cannot.”
Other technology plans include adopting a core banking platform from a major global supplier; ATMs that enable people to pay money in as well as take money out; and outsourcing IT services to UK-based provider Softcat.
Account holders will use digital display cards, which are secure through generating one off passwords, when making transactions. This removes the need for a separate device. Ishaque says these cards are more secure, but banks are reluctant to use them because they cost £15 each.
Lintel has had discussions about direct membership of payment schemes such as Faster Payments, Link and Bacs and will be a membership of the Post Office scheme to offer white-label banking services on behalf of banks in its branches.
UK on the cusp of retail banking revolution
Recent months have seen a spate of new banks granted licences, with others going through the process of obtaining approval.
When Metro Bank opened its doors in 2010 it was the first new company to be granted a banking licence in 150 years. If research from CBI and PricewaterhouseCoopers (PwC) is anything to go by, finance firms have been shaken. A survey conducted by the organisations found that UK finance firms are increasing spending to “increase efficiency and to reach new customers as competition and technology change the nature of the sector”.
There is more reason for new banks to believe they have an opportunity. A recent survey of 2,000 people by banking software supplier Fiserv revealed 80% of people would trust a bank if it had the right technology in place. More than half (56%) said a new bank would have an advantage over rivals if its IT was reliable.
The UK could be on the cusp of dramatic changes in retail banking, following the launch of a current account comparison service, which matches people with current accounts using data about their financial activity. The current account comparison site from Gocompare.com, which was announced by the government in the Budget, uses Midata. This gives consumers access to the electronic data that businesses hold about them, to help them make informed decisions about which service providers to use. This can be used by the Gocompare comparison site to match people with a current account that suits them.
Lintel has targeted a niche customer base where demand for UK accounts is high and has set out its technology strategy. If it can get funding and approval, there appears little to stop it going beyond serving migrant labour – exactly as the Bank of America did.