U.K. Banks Modernize to Meet Regulatory, Market Demands

Banks in the U.K. are carrying out large-scale technology transformations in response to evolving regulations, changing customer expectations and the emergence of new innovations and competitors, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The 2022 ISG Provider Lens Digital Banking Services report for the U.K. finds that banks need to do business in new ways as more consumers turn to online and mobile forms of banking, especially in the wake of the COVID-19 pandemic. Rising competition from FinTech startups and other non-bank alternatives offering retail banking, loans, embedded finance offerings and securities trading has also made digital transformation a greater imperative.

“The ongoing wave of disruption in the banking industry, coupled with changing U.K. banking regulations, have set the stage for major modernization projects at both domestic and global banks in the U.K.,” said Owen Wheatley, lead partner, banking and financial services at ISG. “Legacy core banking platforms need to evolve and transform quickly.”

To meet new market and legal requirements, banks in the U.K. increasingly are taking advantage of new technologies, including AI, machine learning, robotic process automation (RPA), natural language processing (NLP), intelligent automation and analytics, ISG says. These tools enable capabilities that benefit both internal operations and customer experience.

The need to comply with new regulations is also driving U.K. banks to modernize their systems and introduce new features. Among other concerns, banks need to implement solutions to comply with Basel 3.1 regulations on capital frameworks and risk, new rules on operational resilience against future events like the pandemic, and Payment Services Directive 2 (PSD2), covering customer security and integration of APIs through open banking frameworks. Banks also need to comply with tighter rules on detecting and reporting financial crime and money-laundering, a rising concern as geopolitical issues generate more international sanctions.

U.K. banks are updating their technology around payments and card processing to meet consumers’ demands for new features that give them more options, the report says. Real-time payments, embedded finance (buy now, pay later), digitalized cards and payment-as-a-service, plus greater monetization of data about payments, require the transformation of legacy banking platforms.