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* Metro Bank broke mould by using software supplier
* Technology has been a barrier for new banks
* Big five lenders still dominate UK landscape
By Matt Scuffham and Steve Slater
LONDON, Dec 21 (Reuters) - When Metro Bank prepared tolaunch in 2010 as the first new bank to appear on British highstreets for over a century, its founders broke with conventionby outsourcing the construction of its computer systems.
Until then, British banks had built their own software fromscratch, whereas counterparts in the United States opted for"off-the-shelf" platforms that made it easier and quicker tolaunch new businesses.
British lawmakers want new banks to challenge the dominantlenders, which have been hit by a succession of scandals. Somein the banking world say using cheaper and more nimbletechnology 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 colourful U.S.entrepreneur who opened his first bank branch in Philadelphia atthe age of 26 in 1973 before growing Commerce Bank into one ofthe country's top 20 lenders over the next three decades.
"It's almost impossible to do a new bank unless you have oneof these packaged IT systems. That had never been done inBritain and Metro Bank would never have happened unless we weresuccessful in arranging to get that done," he told Reuters.
FIVE HURDLES TO CLEAR
Five banks -- Lloyds, RBS, Barclays, HSBC and Santander -- still providearound 85 percent of current accounts in Britain.
Entrepreneurs and advisers said there are five mainchallenges for a new bank trying to break that grip.
They must find a gap in the market, raise capital, get abanking licence, gain access to a payments system and set up ITand other infrastructure. Often the last issue proved thestumbling block.
Hill and his co-founder Anthony Thomson balked at the costand time required to build a new IT platform and asked Swissbanking systems specialist Temenos to provide thesoftware. The system was set up in nine months and other newbanks are following that path.
Executives at new banks said having new computer systemsgives them an advantage over established banks struggling withoutdated systems.
"Now the problem is with the larger banks because theirsystems are old and their front office digital infrastructurequite often doesn't tie in with their back officeinfrastructure," said Philip Monks, chief executive of Aldermore
Other software providers are developing similar technologyand targeting the new UK banks, including FIS, Misys, Infosys and Oracle.
Metro Bank's Thomson has partnered with Fiserv tocreate an "off-the-shelf" software platform called Agiliti.
They allow a start-up to buy a standardised platform andhave it configured for the service it wants to provide, whetherthat is current accounts, savings or different types of loans.
The bank will typically pay a set amount and then extra feesper customer, perhaps about 8 pounds ($13) per customer for asimple savings product or 20 pounds per current account.
That cuts initial costs for the banks and means the systemcan be built up over time, something the financial regulatoralso supports.
NEW ENTRANTS
The regulator last year made it easier for new banks to getoff the ground, cutting the length of time it takes to apply fora banking licence, lowering the amount of capital new banks musthold and trying to reform the payments infrastructure.
Five banks were given licences in the first year of the newregime, and there are about 25 companies in the process ofapplying.
Many of the new names are looking to niche markets.
Lintel Bank is targeting migrant workers, for example. AtomBank, which is a new venture from Thomson, is a pure digitalbank that plans to launch next year.
Other start-ups are looking at lending to specificprofessions, such as doctors or farmers, who may want a moretailored banking offer.
"You need to have something different to break through thenoise and attract a segment of the market, so you need to beclear on who you are targeting and what is your nicheproposition," said Nic Parmaksizian at consultancy firm Capco.
Although the new technology and regulatory changes have cutthe time it takes to bring a bank to market, it can still be alengthy process likely to take more than a year.
The prize for new banks is substantial. Britons have anestimated 64 million current accounts. That could grow to 80-90million in a decade and challengers could take 15-20 percent, ormore than 15 million accounts, industry sources estimate. ($1 = 0.6395 pounds) (Editing by Keith Weir)
