The majority of banks and financial service companies operate with complex and costly legacy IT systems. A high degree of security and compliance is required to safeguard customer and financial data; making it seemingly impossible to run a bank with external providers.
Metro Bank PLC, the first new financial institution in the UK to earn a retail banking licence in 150 years, is proving that banks can function entirely with managed service providers (MSPs).
An American businessman, Vernon Hill, founded Metro Bank in 2010, with the first branch opening in Holborn, London. A further 47 have opened around the country, with Metro now managing 1 million consumer accounts, with £10 billion on the balance sheet, according to a recent interview with Hill.
Metro runs all IT services through an outsourced MSP.
Managed Services for the Financial Sector
When Hill considered breaking into the UK financial market - after founding and later selling his first bank, Commerce Bancorp to TD Bank Financial Group in 2007 for $8.5 billion - he quickly found that IT solutions were going to be a challenge.
Hill explained to the Treasury Select Committee that in the US, “there were outsourced providers who were ready to put you in business almost immediately, while in the UK one had to build IT from scratch”, according to a CMA report into Metro Bank.
Building an IT solution from scratch meant finding the right MSP partner, then creating a system that would securely manage million of consumer accounts and a range of products at scale. It wasn’t easy, but they managed, through a partnership with Temenos, which minimised the initial capital outlay, whilst providing them solutions that are scaling as Metro continues to grow. Implementation was fast, going from concept to a functioning IT system in only nine months.
In some ways, Metro had it easy: unencumbered by legacy systems, they started with a blank page and designed an IT platform that met the needs of a modern retail bank.
However, they certainly aren't the only one experimenting and working with third-party IT service providers. According to a 2014 report by Temanos and Deloitte, “banks using third-party banking applications have enjoyed on average a 19% higher return on assets (RoA), a 28% higher Return on Equity (RoE) and a 6.5 percentage point lower cost-to-income ratio than banks running legacy applications.”
Benefits of Managed Services
Compliance issues make it difficult for banks to renew or replace core services. Especially now, with some Brexit-inspired uncertainty in the air. But modern banks know that legacy systems are only going to slow growth in the long-term, making IT renewal an increasingly attractive option. Here are a few benefits of managed services for banks:
#1: Innovative, Best-of-Breed Technology
Most leading managed service companies keep their tech cutting-edge, so you will always have a technical advantage, which is the key to achieving profitable growth in a competitive market.
#2: Strategic Growth
IT issues often fall into two categories: An urgent crisis, or a long-term project. Either way, with most banks IT staff are currently not focusing on projects that generate value for customers.
With an MSP, infrastructure runs in the background, and urgent situations are resolved quickly. Clients’ don't need to spend all their internal resources on these issues, which means you have the time and capacity to implement strategic digital objectives.
#3: Flexible Services
Managed service providers are flexible: With many able to offer a pay-as-you-go (PAYG) service for times when you want IT to scale in line with growth objectives.
#4: Secure Services
Security is of paramount importance with MSPs. Not only do they keep a close eye on data centres, Internet access, account monitoring, and other threats, they can work with you to ensure a 24/7 proactive approach to security is taken.
#5: Lean, Green and Consistent Delivery
Working with an MSP means that internal IT stays lean. No expensive projects. No hardware flights-of-fancy, unless they happen to connect directly to a revenue generating project. And, at the same time, you benefit from 24/7 IT operations and disaster recovery security.
Financial services have always been a competitive market. Over the next few years, the banks that are willing to invest in innovation are going to gain market-leading advantages over their competitors.