TECHNOLOGY STRATEGY: MID- AND LOWER TIER BANKS Despite all predictions to the contrary, the UK’s banking giants still reign supreme, rising above fears that rival fintechs will eat away at their customer base, steal their talent and drive them to the outer rim of the financial services universe where they will exist as mere utilities. It hasn’t happened. According to the union Unite, profits at the UK’s big four banks have spiked by 42 per cent since before the pandemic. They posted a record £33billion between them in 2022. And, together, they still oversee more than three-quarters of all current accounts. UK retail and commercial banking continues to be relatively concentrated, with a notable absence of mid-tier competitors of scale, which is why there has been so much debate in recent years over how far the government, now that the UK is outside of the EU, should subject them to the same costly and operationally time consuming risk measures as bigger institutions. But could a combination of more proportionate regulation and a new wave of more affordable and flexible technology begin to level the playing field for small players? The UK Government’s post-Brexit financial services shake-up, known as the Edinburgh Reforms, has an underlying rationale to ‘unleash’ financial services to ‘drive investment and growth’ by creating an open, sustainable, and technologically advanced sector. Contained
among a myriad of proposals is changing the Building Societies Act to give UK building societies greater flexibility to raise wholesale funds, enabling them to grow and compete with retail banks. And there are also plans to modify – perhaps eventually replace – the ringfencing regime, designed to protect customers of a bank’s retail division from shocks elsewhere in the business if a bank is holding more than £25billion (currently) of deposits. The government is conscious that the UK’s mid and lower tier, challenger and specialist banks play an important role: a diversified banking system is a stronger and more resilient one, after all. And these banks have real-world impact on the economy: they are a major and growing source of lending to small businesses, reaching a record high of £35.5billion in 2022, according to the British Business Bank’s latest Small Business Finance Market report. In many cases, they also provide better value for customers. Major banks have only recently been warned by regulators of possible intervention if they fail to pass on the Bank of England’s decade-high interest rate to customers’ saving accounts, for instance. Many smaller institutions immediately raised returns. So, if the regulatory environment is moving in these smaller players’ favour, there’s also likely to be a growing need to adopt technology to scale their services. The problem for mid- and lower tier financial services providers is that often
they don’t have the advantage of a big bank’s huge internal IT resources, nor the budget for full-scale transformation. But they don’t have to, says Rajesh Saxena, CEO for retail and central banking business unit (iGCB) at Intellect Design Arena. A publicly listed company in India, it’s put its mind to solving the dilemma for mid- and lower tier institutions in the UK by introducing a regulatory compliant platform this year, called eMACH.ai.
LEVELLING THE PLAYING FIELD If you’re not familiar with MACH, it’s an acronym that stands for Microservices (individual segments of business functionality that are independently developed and managed); API-first (all functionality is exposed through an API, making it possible to tie together applications or services); Cloud-native (often a software-as-a-service that gives elastic scaling and the ability to update functionalities easily); and Headless (the front-end user experience isn’t tied to back-end logic, giving more design freedom and interconnectivity). Fully aware of the difficulties smaller organisations have in matching the technology spending power of their Tier 1 competitors, Intellect Design Arena chose to pre-integrate with key fintechs and partners in the UK market in developing the eMACH.ai platform. That acts as a big leveller, says Saxena. “Typically, when you want to launch a new product, a new business or a new service, the maximum of time, effort and investment is required in integrating with parties, such as a credit bureau, a know-yourcustomer (KYC) registry, or a government agency. So we have pre-identified
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TheFintechMagazine | Issue 28
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