Start from scratch - adapting to consumers’ digital demands

7 December 2016

Next-generation banks are asking fundamental questions of the establishment. No longer constrained by legacy data systems, these new businesses are situated to innovate and adapt to consumers’ digital demands. Bradford Keen speaks to Anne Boden, CEO of Starling Bank, about the freedom that comes from building her systems from scratch and her perspective from the helm of a banking revolution.

Anne Boden’s fingers flit across the touchscreen, pausing to ask: “Have you heard of Slack?” She seems momentarily disappointed when the face staring back shows no recognition, but this turns to excitement as it gives her the chance to explain the new messaging service her team uses.

The CEO of Starling Bank loves technology and, while using her phone to locate someone named Stephen from the tech department, she speaks about how her team has eschewed internal email for this slicker and quicker messaging app.

In leading a next-gen bank, Boden has applied the findings of her global research to her business model. In 2013, she went travelling around the world trying to understand what exactly customers want from their banks. “Everyone from Australia to the US told me the same story,” she says. “It’s very important to have everything mobile.”

When Starling launches in January 2017, it will offer a single product: a current account powered by an app on customers’ mobile phones, which is connected to a contactless debit card. According to Boden, it will be the best type of current account yet, making the version offered by traditional banks obsolete. There won’t be any Starling branches but customers will have access to a service line staffed 24/7.

Driving forces

Boden, who began her career at Lloyds Bank in the early 1980s after graduating with a computer science degree from Swansea University, feels like she is, in part, driving a revolution. She has been reported in the press as saying that banking is broken and needs to be fixed, and that the industry is living in the dark ages. Her solution: “build a new system from scratch”.

That is what Boden and her team at Starling are doing. They received their banking licence in July this year, and are on track to deliver a product and service that are completely new.

“We went into the financial crisis and when we came out nothing had really changed,” she says. “It was the same old thing.” Banking had stayed the same, but technology had evolved and, with it, customers’ expectations. “I think the banking industry had been too obsessed by [the crisis]. It hasn’t actually looked up and seen what the world expects from it.”

Studying services such as iTunes, Netflix and Amazon, Boden has found plenty of inspiration to draw upon, and is excited about bringing this technology to banking. Inherent in this approach is the principle that data should provide value. “I think there is lots of data,” Boden says. “It’s a question of insight. You can collect and manage data, but only when it is put together in a certain way does it give insight.”

Imagine a banking app tracking all of your lunch-related expenditures from Monday to Friday, including being able to scan your diary to see with whom you ate, and offering all of that in a simple graphical display. Or think about an app being able to calculate that after standing orders, rent or mortgage and any scheduled outgoings, the user will have to stay within a daily spending limit in order to make it comfortably to the end of the month.

Starling does not have to contend with an ageing legacy system. Boden has seen how these systems can be like a pair of lead boots strapped to an already struggling swimmer.

This is what Starling Bank’s package will offer. “The vast majority of people in this world are not about producing spreadsheets for their money,” Boden says. “It’s all about making things convenient.”

Gleaning the data in these ways will provide customers with real value. Starling intends to collect data from its customers’ transactions but it won’t use it against them. Boden says Starling is not about cross-selling products; it will rather use that information to provide a necessary service.

Boden doubts the longevity of cross-selling anyway. According to the traditional model, a bank will take a product such as a current account and charge to it all the costs of running the branches and the payment systems. If the product starts making a loss, the bank needs to get revenue from another product to keep it afloat.

This is not how Boden plans on doing things. “If we can tell that a customer has a £200 surplus every month,” she says, “we will suggest that they have a savings product. What we won’t do, necessarily, is try to sell our own product. We will help them buy products from other providers that may be better than ours.”

Who is it good for?

The bank is, initially at least, for people who do everything on their mobile phones. Users are already confident on these types of platforms and seek the same convenience when banking that they have come to expect from the apps they use for their daily activities.

Building its systems from the ground up, Starling does not have to contend with an ageing legacy system. With over 30 years in banking, Boden has seen how these systems can be like a pair of lead boots strapped to an already struggling swimmer; however, she is sympathetic to the plight of traditional banks.

According to a survey conducted in 2014 by software company Talend, respondents cited legacy systems as the primary IT challenge facing the banking industry. More than half of the respondents blamed these antiquated systems for poor data integration and 45% said the systems inhibited them from garnering real-time insight.

“Imagine a cube,” Boden says. “One dimension is the channel, another dimension is the product and another dimension is the type of customer.” All the legacy systems supporting those cubes need to interrelate and then there are frequent acquisitions over time. “So, what [traditional banks] have is a patchwork of systems joined by spaghetti. If you pull one piece out, it leaves a hole, and the whole thing collapses.

“We don’t have a legacy,” she says. “We don’t have the backlog; we have a simple product for a simple set of customers and we can use the latest technology. The existing banks don’t have that option.”

Building upon existing data systems and technological platforms was never going to be an option for Boden.

“A lot of the new banks are basically taking a banking package, repurposing it and delivering the same old products,” she says. “We think consumers deserve something new these days.”

Challenger banks, according to Boden, are as ill equipped to deliver change as traditional banks. Citing TSB and Williams & Glyn as examples, she says they are beset by the same problems as the banks that birthed them. Lloyds and RBS essentially “cloned their systems” of different ages and histories, and tied them together. “It’s the same problem,” Boden says, “but with less volume going through it.”

Virgin Money and Tesco Bank use existing banking packages. “They changed the colours and the stationary a bit,” Boden says, “and the app is a different colour, but it is roughly the same thing.” Sainsbury’s and Marks & Spencer’s are based on other banks’ technology. “Everybody is using a package or some other bank.”

Migration of data

These banks – traditional and challenger – know how to build the necessary technology into their systems and, as Boden says, they often have plenty of money to do this. The stumbling hurdle is one of migration: they cannot move all the customers from the old to the new platform.

The Commonwealth Bank in Australia and Nationwide in the UK are two organisations that have migrated their data and products. The difficulties attached to this are threefold: it’s expensive – in the billions – it takes time and “you need a very brave CIO to press the button”, says Boden.

Legacy data systems require regular maintenance and frequent upgrades. However, the people who know how to perform these tasks are either retired or close to that final pay cheque. Complex organisational structures further limit existing banks.

Boden wanted to be free from legacies and traditions. So she committed her energy to technology instead. “It’s our differentiator, because you need to do that in order to get a different product.”

The hardest part of starting from scratch has been challenging the status quo. Boden says it has been frustrating trying to explain that they are not adding on to any existing banking packages. “We say ‘we’re building it; that’s how banking packages started, people built them’.” She lets out a laugh of exasperation and is swift to add that talking to tech-savvy people always reignites the spark of her own enthusiasm. “Those who know what they’re talking about tend to be very supportive, and very excited and envious.”

Keep it safe

Security is often an issue raised when new technology is being implemented. Feeling safe transacting on a mobile platform is “a state of mind”, Boden says. It will take time for people to catch up with banking, even though mobile phones, with additional biometric safety features, are considered safer than a desktop or laptop. Geographical information from mobile devices also helps protect customers from fraud. “We know where you are with a mobile phone,” she says. “So, if your card is being used three miles away, it is probably not you. We can alert you when that happens and you can turn your card off.”

A lot of the new banks are basically taking a banking package, repurposing it and delivering the same old products. We think consumers deserve something new these days.

Turning a card off and on again can be done by the customer through his or her phone. While standing in the queue about to board an aircraft from Sao Paulo, Brazil, to return to the UK, the customer can, through a simple interaction with the banking app, essentially freeze the account for all transactions in South America.

“I think it’s a question of how you trust technology and services,” Boden says. The way people log on to third-party sites and services through their social-media accounts is a case in point. There was an initial reluctance but increasingly people have grown accustomed to using integrated applications, especially with companies they trust, to authenticate those other services.

“We’re a bank,” Boden says. “We’re fulfilling very important functions for customers. We have to protect them from the bad guys. The important thing is that we have resilient systems that are very secure.”

Instead of merely calling for revolution, Boden has donned a beret and moved to the front line. Ideally, it won’t be televised, but rather delivered straight to your mobile. She wants change and is bold enough to make it happen. “For all of us here,” she says, “this is more than just a job; it’s a mission.”

Anne Boden is CEO of Starling Bank but has spent over 30 years in the traditional banking sector. She began her career at Lloyd’s Bank after graduating with a computer science degree. She has also worked at Allied Irish Bank, RBS and ABN Amro.
Starling will simply provide just mobile and contactless banking to customers.