Recognise Bank harnesses digital flexibility to drive better outcomes for SMBs

The Situation: We’ve seen the digital bank model sweep the globe, sponging market share from traditional banks. But most of it is retail banking focused. The heart and soul of most local economies are in small and medium businesses (SMB). The SMB market needs digital banks, and Recognise Bank, a UK-based SMB specialist, addresses this need. Its approach exemplifies HFS’ OneOffice™ operating model.

Creating a bank that is digital, internally and externally

Flexibility and speed are the biggest differences between traditional and digital banks. Many challenger banks provide the same deposit and lending services as traditional banks. Freed from the burden of legacy, they do it much faster through channels of choice, offering options and the potential of one-to-one customization with a certain nimbleness of product configuration. Several frustrated high street bankers who thought SMBs could be better served conceptualized a digital bank for SMBs back in 2017.

It took three-plus years, several capital-raising cycles, a multi-stage banking application process, and authorization milestones with UK regulators amid tightening regulatory scrutiny and a global pandemic for Recognise Bank to achieve Authorized with Restrictions (AwR) status in November 2020. This status meant the bank could offer unregulated loans to businesses. When it achieved full authorization in September 2021, Recognise Bank could begin offering personal customers savings deposit accounts.

The bank intended to couple the latest cloud-based technology with a relationship-led approach to provide its SMB clients with the speed and quality of service needed to help them grow their businesses. This mission became even more critical as the pandemic significantly strained SMBs.

Monica Velasquez was the Chief Technology Officer of Recognise Bank from its inception through its successful launch. The former PwC consultant cut her teeth helping established banks modernize and transform. She designed cloud architectures and traditional on-premises architectures and got to know the array of technology partners needed to enable digitization. She also learned that the most challenging part of a transformation was not the tech or reinventing processes but changing mindsets.

When the opportunity to develop Recognise Bank arose, she was attracted by the purpose of building a better bank for SMBs and saw it as a unique opportunity to use her deep knowledge to create a bank architected around the alignment of people, process, and technology. As Velasquez shared with HFS:

The objective was to create a bank that is digital, internally and externally. Banking architecture is about more than technology. Yes, you need to observe the two critical digital bank architecture principles of cloud-always and API-native. But you do this to build a bank with no silos. Front to back is seamless, enabling nimble customer experiences and symbiosis of operations.

– Monica Velasquez, Chief Technology Officer, Recognise Bank

Recognise Bank’s equal emphasis on internal operational excellence and stellar external customer experience is in close alignment with HFS’ OneOffice™ model in Exhibit 1.

Exhibit 1: The HFS OneOffice™  operating model: Kill your silos to better support employee and customer experience

Source: HFS Research, 2022

Cultivating flexibility

The design for Recognise Bank started with a blank sheet of paper—a rare greenfield banking build that evolved from vision, build, implement, and release to a live environment.

HFS Research has found that banking value chains are fragmenting, driven by the dual mission of digitization (the latest tech) and composability (the ability to rapidly and easily create and change offerings). Banking tech stacks are changing from the legacy monoliths of the past to nimble, orchestrated ecosystems. Exhibit 2 represents our view of the emerging composable ecosystem-based banking value chain.

Exhibit 2: The composable ecosystem-based value chain for cloud-native digital banks

Source: HFS Research, 2022

Partners were essential to the creation of Recognise Bank. Velasquez’s background provided the bank with strong visibility into the potential independent software vendor (ISV) partners that could support its cloud-native vision. With this in mind, Recognise Bank opted to work with two partners for its core banking needs, Mambu as the brain powering all transactions and nCino as the lending hub.

While on paper these firms looked like competitors, to Recognise Bank, they represented the most effective way to achieve flexibility in providing a lending proposition to its SMB clients. Mambu and nCino were active in this collaboration, recognizing that their symbiosis is essential to the success of Recognise Bank. Together they could power the flexibility the bank wanted to bring to the SMB community. According to Velasquez:

We offer products tailored for specific SMB needs—personalized deal management, not inflexible offers. There must always be a way to be more flexible, like offering a specific loan for a set period of time and then having the ability to change the term or the interest requirements to better meet a client’s needs. A digital bank is not just technology. It’s flexibility.

– Monica Velasquez, Chief Technology Officer, Recognise Bank

Recognise additionally partnered with Newcastle Strategic Solutions, a UK-based savings management platform provider, for its deposits proposition.

Combining flexible digital offerings with regional support

Unlike many of its digital bank siblings, Recognise Bank has invested in brick and mortar in the form of a network of regional hubs across the UK. These hubs are a base for regional relationship managers and support teams, including regional underwriters, enabling SMBs to have personal conversations with experts about their growth needs instead of being pushed to centralized contact centers. This approach offers the best of both worlds: personal support plus speed and personalization, enabled by digital technologies.

The bank appointed a head of communications to help spread the word about its offerings and trumpet its successes. By the end of March 2022, the bank had delivered more than £100 million in lending to the UK’s SMBs and attracted almost £95 million in deposits from savings customers, publishing details of deals and spotlighting its ability to offer tailored and rapid solutions, like funding a £2 million loan in 23 days from approval to drawdown of funds.

The Bottom Line: The promise of digital banks is not the technology. It’s better service and outcomes enabled by integrated OneOffice™ operations

Digital banks offer similar deposit and lending services as traditional banks. They just do it faster and with greater personalization options. Its cloud-native and API-enabled operations allow for free flow of data and real-time integration across different functions. The outcome is the integration of front-to-back operations that, in turn, support stellar external customer experience.

Recognise Bank is a prime example of HFS’ OneOffice operating model approach. It has built an SMB specialist digital bank powered by the latest technology and built on the mantra of seamless front-to-back operations.