The Office of Fair Trading, estimates that IT currently accounts for around two-thirds of all set-up costs facing entrants to the retail banking sector.
This will put huge pressure on start-ups to grow their customer base as quickly as possible to spread the financial outlay more evenly.
But with the OFT also predicting that high street banking brand loyalty will prevail, poaching customers from the existing big boys might prove more than a challenge. reignite through increased competition, it is imperative that software providers adapt their pricing structures to make them more attractive for start-ups.
This can be achieved in three ways.
One is the introduction of a price per transaction, where costs are charged like a ’pay as you go’ arrangement. This can help start-ups spread costs more evenly.
With the right technology infrastructure, at the right time and at the right price, start-up firms can thrive
Second, a price per account, where costs charged are linked to the number of accounts on the books is another effective way that an IT supplier can support a new entrant. And finally, providers could offer a risk and reward option, where costs rise only as the client’s book grows.
In turn, software providers can also support start-ups by offering a flexible, robust and efficient servicing and reporting platform.
This is imperative if a start-up is to collate the business intelligence necessary to gain the relevant Financial Services Authority and banking licences and permissions for trade.
A robust servicing platform will also strengthen the pitch to wholesale funders that may unlock greater funds if a clear and manageable investment risk can be demonstrated.
When selecting the appropriate software, it is critical lenders ensure the technology selected is flexible enough to adapt and evolve as the business grows.
This is not only to ensure business rules and processes can respond to an increase in accounts in the portfolio, but also to learn from and work around operational mistakes that are inevitable in the early stages.
Streamlining such business processes will also help with selecting the right staffing levels to get the business off the ground.
Similarly, simulation tools allow business processes to be modelled against future growth predictions, thus avoiding typical bottlenecks associated with business growth.
Although a cautionary approach is prudent in these difficult times, I can’t help thinking that the OFT might have been a touch hasty in sounding the death knell for new entrants to the market.
With the right IT infrastructure in place, at the right time and at the right price, start-ups can thrive in this new world and give household banking brands a run for their money.