How banks can avoid the fate of BlackBerry (Part 2)
There was once a time when the mobile smartphone market was dominated by BlackBerry handsets.
Alongside this threat from new market entrants, legislation is changing the bank business model. Regulators in the UK and in Europe want to increase competition in the market by pushing towards an ‘open banking’ model.
Open banking will require banks to share data that they have historically held exclusively, 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 allow third parties to build products on a bank’s infrastructure, enabling new services to be delivered and specifically tailored to the needs of different customers.
With regulation forcing banks to open up their technology to FinTech firms, startups and other financial service providers, consumers are becoming less reliant on providers of traditional financial services. The idea that one institution will manage all financial services for one customer will no longer be the most viable or the expected model. Open banking creates a new relationship between banks and customers. It requires banks to adopt a customer centric and data centric view on how they do business.
In this emerging model, data becomes a valuable commodity. To extract value, banks must have the appropriate core-technology and infrastructure in place. It requires a good API governance structure that must include: standards, management policies, data access and statistics, and development processes. For banks to become digitally ready they must understand the data currently available inside their organisations; they must understand the data information flow and where the business sits in terms of existing APIs.
The challenge for incumbents is achieving this while still relying on legacy systems and outdated mainframes. Newer systems and programming languages designed to cope with the shift in consumer behaviour do not interact well enough with older, slower back-office systems. This will ultimately hamper their ability to respond to the digital challenge.
The historic monopoly enjoyed by incumbents within retail banking is very much under threat. If they are to avoid their own BlackBerry moment then they must become ‘digitally ready’. There are some incumbents such as Spain’s BBVA who are leading the way towards implementing digital transformation strategies. Spain’s second largest bank has explicitly stated that its top strategic priority is digital transformation. It means having the technology and business processes in place that will allow them to meet the digital challenge head on in an agile and nimble way.
Many banks have spoken about becoming digitally ready but few have embarked on the necessary steps needed. Too many incumbents continue to believe that digital transformation means creating digital products and services whilst maintaining existing business models and back end legacy systems. If retail banks are to have the future customer-focused business they need to remain relevant, they simply cannot afford any further delays.