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Nationwide to increase digital spending as fintech rivals strengthen

Nationwide Building Society expects 2018 to be the year when financial technology firms become established players in the retail finance sector, CEO Joe Garner said.

"This is going to be the year that fintech starts to emerge. I predict that in a year or two, we'll be talking about some brand names that probably haven't been invented yet," he said at a May 22 press conference to present Britain's largest mutual banking group's fiscal-year results.

Startup banks are merging and therefore posing bigger threats to established lenders, Garner added, warning that Silicon Valley giants such as Apple, Facebook and Amazon are eyeing the banking sector, too.

"In another corner we've got big tech," he said, adding: "What are the large tech firms going to do in financial services?"

New regulations that are seen as a boost to the fintech sector came into effect in 2018, most prominently a European directive known as PSD2 and the Open Banking standard in the U.K., allowing fintech companies to initiate payments and access bank account information at the request of users.

Digital investments

The added competition has spurred Nationwide to increase investments in digital banking, according to Garner.

"We are therefore reviewing our technology platform, and we will accelerate our investment plans," he said.

Garner added that being a building society beholden to its customers, who are formally members with voting rights over the company's direction, Nationwide is well placed for bold technological innovation and expenditure.

"We are in a privileged position because we are a scale player — we are not slaves to the pressures of shareholders' quarterly demands," he said at the press conference. "We are incredibly well capitalized. Therefore, we are looking at how we make the most of this really dynamic position. And we are thinking that there are quite a few opportunities for us in this."

He promised further details about his plans later in the year.

CET1 impact

Nationwide booked statutory pretax profit of £977 million for the 12 months ended April 4, down from £1.05 billion in the previous tax year. Its cost-to-income ratio jumped to 64.6% on a statutory basis from 60.2%.

Meanwhile, the building society's common equity Tier 1 ratio grew to 30.5% from 25.4% over the same period, though it is set to halve after 2020, when new regulations are enacted, limiting banks' ability to use their own formulas to calculate how much capital to set aside against mortgage loans and other debt.

"We note, however, that organic earnings through the transition will mitigate this impact such that our reported CET1 ratio will in practice remain well in excess of the proforma levels implied by this change," management said in a report published May 22.

Nationwide will also enter the small and medium-sized enterprise banking market provided that it receives some £50 million or more in funds from the RBS settlement, Garner said.

The bank applied in late March for a chunk of the £425 million that the government ordered RBS to pay its rivals to stimulate competition in the business banking sector after failing to divest its Williams & Glyn network.