UK challenger bank Starling is the brainchild of an IT professional who has spent much of her working life at some of the world’s biggest banks – but Anne Boden tells Computer Weekly how spending time with startups outside mainstream banking convinced her to build a digital bank from scratch.
The UK banking sector is going through a period of unprecedented transformation, driven by a combination of cultural, technology and regulatory change. Starling Bank is the result of the convergence of all three.
The bank – one of a growing group of challenger banks in the UK – will only offer a current account, based on customers' smartphones. It is going through the licence application process with industry regulator the Prudential Regulation Authority and raising its next round of funding of over £10m. Starling expects to get its licence in 2015 before launching next year.
The bank's proposition is simple: It only offers a current account, used via smartphones, and is using the latest mobile and data technologies to support digital lifestyles. The company's mission statement explains its ambition of "building a bank that will champion the power of modern technology to open up possibilities and create a whole new way of banking".
IT inside banking – and out
"All through transparency, collaboration and connectivity," says Starling. "A truly mobile experience, delivering much more than an app and a cash card, to make managing your finances effortless and empowering.”
And who better to set up a bank with the sole offering of a current account fit for the digital lifestyles of consumers, than someone who has not only worked in the tier-one banking sector for over 30 years in IT and operations – but who caught the startup bug after taking time out of the mainstream business the better to understand it.
Starling founder Anne Boden is an IT professional who got into banking: Armed with a BSc in computer science and chemistry, and an MBA, the now fellow of the Chartered Institute of IT joined Lloyds Bank in the early 1980s when, she says, she was “doing fintech before fintech was fashionable”.
After Lloyds Bank her career has included: A period heading up UK IT at Standard Chartered; being one of the original designers of the Clearing House Automated Payments System (Chaps); a role as a strategy and technology consultant at PWC; restructuring European operations at UBS; holding the global CIO for reinsurance at Aon; and running business in 34 countries for ABN Amro and subsequently RBS, when it took over the Dutch bank.
But it was after leaving RBS in 2011 – to spend time working with startups to find out what was going on in financial services outside the big organisations – that she realised how banks needed to change. She joined Allied Irish Bank as COO and began implementing some of the ideas she'd had while working with small fintech groups. This was successful for the bank but Boden wanted more – and realised the only way to get it was by starting from scratch with a new bank. And the time was right to do this.
She says the confluence of regulatory, technology and cultural changes was the big bang that triggered Starling Bank. She says that, when the industry regulator changed the rules for setting up a bank in March 2013, it closed a "Catch-22". “Before this you couldn’t get a licence until you had everything in place, such as all the systems and people. But you couldn’t get all this without the licence.” But the introduction of a two-stage process, known as Option B, allowed for authorisation with restrictions that made it possible for firms to get people and systems in place.
Then there was the cultural change that has seen people live their lives on their mobile phones. The third change came with the technology developed by startups in the sector now known as finance technology – or "fintech".
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- The UK could be on the cusp of dramatic changes in retail banking following the launch of a current account comparison service.
- 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.
“It is now possible to start a new bank, people live their lives on their mobile and there are some great technologies out there,” she says. In January 2014 she started working full-time setting up Starling Bank.
Boden describes the time she spent outside traditional banking: “It was incredible, lots of things have happened. My world was all about enterprise systems, huge projects, departments with tens of thousands of people and budgets of billions of pounds. All of a sudden I went into a world of learning what people were doing in small startups. I realised that certain things were a lot easier in small startups. They didn’t have the bureaucracy, they were very agile and they were using technology in a different way.
“I took all those learnings into Allied Irish Bank where I was COO. I managed to reduce costs, restructure the organisation and bring new technologies to the organisation.” For example the mortgage application process was reduced from taking three weeks to three days. Other IT strategies included taking legacy systems and exposing APIs to them to deliver applications on top.
“But I realised I could do even more if I started from scratch,” adds Boden.
She also took inspiration from the likes of Apple. “The music industry has changed with iTunes, Amazon has changed the shopping experience and banking deserves to change as well,” she says.
Data analysis revolution
No financial service is more fundamental to many people than their current account. It is not about making interest or investments but about being able to access your money when you need it. “That is where tech matters. The day to day.”
Starling sees itself as being different, in that it is focused on a current account rather than just transferring a full product set to the digital format.
Boden says Starling wants to do one thing and do it really well. The current account will be free and even offer a little interest, with Starling making its revenue on the interest on the balances and interchange on card payments.
The highly automated current account will cost little to run. It will use data to offer money-management advice in real-time.
Boden says customers can do things like set rules on their phone, so the app can inform them if they are spending more than usual on certain things – and even make recommendations about how to save money.
She says the combination of big data and mobility offers the opportunity for banks to provide useful data to customers to help them manage money.
Starling will leave customers to decide which other financial products they want to use and enable them to access third-party financial services through apps. “We are going to launch the product, grow our customer base and allow our customers to access other fintech propositions, because we are not going to be doing other products,” says Boden.
From its own technology perspective Starling plans to use best of breed components to make up its banking system.
From day one the bank will have: Payment, card processing and risk systems; general ledgers, a ledger system for current accounts, security systems and state of the art apps. And all these will be in a private cloud
Its infrastructure will use software as a as service (SaaS) tools, it will buy bespoke functionality and build functionality in-house. “The reason I think this team of people is right for this is because we all understand the importance of resilience and performance. It has to work 24:7 and data has to be secure,” says Boden.