That’s enough lipstick (Part 2)
Digital initiatives remain a major priority for retail banks.
Financial institutions have seen a number of different approaches by challenger banks, startups and some notable fast movers such as BBVA, either unencumbered by legacy infrastructure or rapidly evolving from such heritage. They can rapidly deliver and deploy low-cost, market-ready solutions themselves or through third parties with highly reduced overheads. They are more ‘platform’ like in terms of the operating model, focusing on the customer and data needs of a digital economy.
Banks need to change their approach in how they address their own infrastructure and agility issues. To make the transformation to a truly digital world, banks must adopt Open Banking. Regulation and cost issues are driving banks towards Open Banking. Regulators in the UK and Europe are pushing a model of ‘open banking’. Open Banking is about creating more competition and transparency within the industry. In the UK, the Competition and Markets Authority (CMA) 2016 report concluded that traditional banks do not face enough competition in the market, with smaller newer banks finding it difficult to grow.
Banks will be required to share data they have historically held, with consumers and third parties. Third parties can access this data by connecting directly to customer bank accounts via a standard Application Programming Interface (API). This access will enable new services to be delivered and which can be specifically tailored to the needs of different customers.
A new relationship between banks and customers
Open Banking will radically transform the relationship between banks and their customers. In this relationship, power has shifted from the traditional bank to the customer. With this development, banks need to reconsider how they create value – it requires banks to adopt a customer centric and data centric view on how they do business.
With customer experience now at the heart of the new banking model, data has never been a more valuable commodity. The difficulty for banks is that they have always held vast amounts of data but have not always been good at interpreting this data and extracting insights. The prospect of making the best use of such data to support customers, remains limited when banks continue to rely on legacy back-end systems that lack the functionality to support the needs of the front-end.
Digital transformation requires banks to show a commitment to innovation (and not just looking at new technologies but undertaking the software engineering to execute sustainable platforms) and a desire to develop a customer centric approach that is enabled by digital technology.
In 2015, the information technology research company Gartner, said of banks:
“To be truly digital, banks must pair an emphasis on customer-facing capabilities with investment in the technical, architectural, analytic and organizational foundations that enable participation in the financial services ecosystem” – Gartner
In 2017 this statement continues to remain pertinent. With increased competition from disruptive challengers fintech startups and some fast adopters from the incumbents – all offering new ways of doing business; remaining banks must ensure they ‘engineer in’ flexibility and agility of the business model to achieve digital transformation and meet future challenges.