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Looking at the effects of new entrants to the banking sector
Two years ago the UK’s regulatory authorities ushered in a new authorisation process for those wishing to obtain banking licences. By reducing required liquidity levels, introducing the concept of recovery and resolution strategies and granting ‘mobilisation status’ the PRA hoped to make it easier for businesses to enter the UK banking system; whilst at the same time reducing the impact of one bank’s failure on the system as a whole.
Speaking to the Mortgage Finance Gazette conference on 11 March, PRA director Martin Stewart outlined some of the new regime’s successes in attracting new entrants to the marketplace. Since the new authorisation process came into effect the PRA has issued 11 new licences, over a third of which were to new entrants into the sector. Current estimates are that over the next few years a further 5 or 6 licences per year will be granted, with between a third and a half of these being granted to new entrants.
Whilst these new entrants are not as yet making significant inroads into the customer base of established organisations, instead targeting areas which are perceived as being poorly served at present, Martin Stewart believes that they are “bringing innovation to banking.” By focusing in on certain products or customer groups, by paying close attention to the service proposition and by making best use of technology, particularly in the connected world in which we now live and work, these new entrants are challenging the dominance of the established market.
Whether the market responds with a more innovative model or looks to swallow up these new players via M&As is a matter for speculation at present. But watching the evolution of the old versus the new will make for exciting times over the next few years and as Martin Stewart concludes, whatever the outcome “we can expect a different landscape to retail banking by 2020.”