It is great to see the securitisation market coming back, driven substantially by the withdrawal of the Term Funding and Funding for Lending schemes. Before wholesale funding came to the UK in the 1980s, mortgage lending was funded almost entirely by deposits. This is still the case for many building societies. However, the market is seeing an increasing appetite from mortgage originators, currently reliant on various funding lines, looking at deposits as an additional funding option.
It is estimated there are circa 40 banking licence applications with the regulator and it is quoted that this is testimony to a buoyant “challenger bank movement”. The reality is that some of these applications are purely to enable lending institutions to take deposits to assist mortgage funding, and not to offer a full range of banking services such as current accounts. Therefore, they will not really be challenging the Big Four in the way the government originally anticipated, apart from making secured lending more freely available.
Clearly there are exceptions to this, such as Atom Bank which offers a broad range of digital banking services. But it is great to see the positive licence granting environment being used to aid funding to ensure that liquidity and competition exists in the lending market. There are some fine examples of businesses that are successfully doing this including Hampshire Trust, Cambridge & Counties and Charter Savings Bank.
The growth in new deposit takers has created more competition in the technology market with existing players such as Phoebus reviewing our deposit origination and account servicing software offerings. What is noticeable is that by reviewing market requirements, they are evolving extremely quickly.
There is not only the futureproofing of technology investment to consider, but the varying savings products both new and existing providers are looking to offer. Traditional ISAs and Junior ISAs in the current low interest rate environment are not as popular. Those new entrants offering savings to fund lending tend to provide fixed term products to ensure they can balance any potential run on funds. Another growth area is commercial deposits which can fund commercial lending at higher margins and there are also charities to cater for.
The savings market will continue to grow and this is a good time to weigh up the suitability of current software solutions to ensure future requirements are catered for. Areas such as self-service around maturities can be a huge operational saving when products expire. Savings technology today feels very similar to the boom of mortgage origination technology in the early 2000s.