When Metro Bank prepared to launch in 2010 as the first new bank to appear on British high streets for over a century, its founders broke with convention by outsourcing the construction of its computer systems.
Until then, British banks had built their own software from scratch, whereas counterparts in the United States opted for "off-the-shelf" platforms that made it easier and quicker to launch new businesses.
British lawmakers want new banks to challenge the dominant lenders, which have been hit by a succession of scandals. Some in the banking world say using cheaper and more nimble technology could be a "game changer" in enabling them to emerge.
"That's the way the whole process developed in America," said Metro Bank co-founder Vernon Hill, a colorful U.S. entrepreneur who opened his first bank branch in Philadelphia at the age of 26 in 1973 before growing Commerce Bank into one of the country's top 20 lenders over the next three decades.
"It's almost impossible to do a new bank unless you have one of these packaged IT systems. That had never been done in Britain and Metro Bank would never have happened unless we were successful in arranging to get that done," he told Reuters.
FIVE HURDLES TO CLEAR
Five banks -- Lloyds, RBS, Barclays, HSBC and Santander -- still provide around 85 percent of current accounts in Britain.
Entrepreneurs and advisers said there are five main challenges for a new bank trying to break that grip.
They must find a gap in the market, raise capital, get a banking license, gain access to a payments system and set up IT and other infrastructure. Often the last issue proved the stumbling block.
Hill and his co-founder Anthony Thomson balked at the cost and time required to build a new IT platform and asked Swiss banking systems specialist Temenos to provide thesoftware. The system was set up in nine months and other new banks are following that path.
Executives at new banks said having new computer systems gives them an advantage over established banks struggling with outdated systems.
"Now the problem is with the larger banks because their systems are old and their front office digital infrastructure quite often doesn't tie in with their back office infrastructure," said Philip Monks, chief executive of Aldermore, a new bank that also uses Temenos software.
Other software providers are developing similar technology and targeting the new UKbanks, including FIS, Misys, Infosys and Oracle.
Metro Bank's Thomson has partnered with Fiserv to create an "off-the-shelf" software platform called Agiliti.
They allow a start-up to buy a standardized platform and have it configured for the service it wants to provide, whether that is current accounts, savings or different types of loans.
The bank will typically pay a set amount and then extra fees per customer, perhaps about 8 pounds ($13) per customer for a simple savings product or 20 pounds per current account.
That cuts initial costs for the banks and means the system can be built up over time, something the financial regulator also supports.
NEW ENTRANTS
The regulator last year made it easier for new banks to get off the ground, cutting the length of time it takes to apply for a banking license, lowering the amount of capital new banksmust hold and trying to reform the payments infrastructure.
Five banks were given licenses in the first year of the new regime, and there are about 25 companies in the process of applying.
Many of the new names are looking to niche markets.
Lintel Bank is targeting migrant workers, for example. Atom Bank, which is a new venture from Thomson, is a pure digital bank that plans to launch next year.
Other start-ups are looking at lending to specific professions, such as doctors or farmers, who may want a more tailored banking offer.
"You need to have something different to break through the noise and attract a segment of the market, so you need to be clear on who you are targeting and what is your niche proposition," said Nic Parmaksizian at consultancy firm Capco.
Although the new technology and regulatory changes have cut the time it takes to bring a bank to market, it can still be a lengthy process likely to take more than a year.
The prize for new banks is substantial. Britons have an estimated 64 million current accounts. That could grow to 80-90 million in a decade and challengers could take 15-20 percent, or more than 15 million accounts, industry sources estimate.
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