Lockdown has presented a huge opportunity for the banking industry. The sector has been forced to modernise its IT infrastructure to cope with the ‘new normal’ and in doing so, has made more progress in its digital transformation journey in the last six months than it has in five years.
The last six months have presented the banking industry with challenges never before seen in our lifetime.
Banks have had to contend with new lending demands from customers and businesses with Government support, the risk profile of almost every customer has changed and society’s spending habits have been overturned. At the same time, the financial services sector has had to meet these needs while completely changing how staff work.
From an operations perspective, lockdown presented a lot of challenges, but in many ways could be considered a blessing for the industry in certain areas. Yes, no bank was fully prepared for lockdown and as a result, the first few weeks weren’t a smooth ride. But in the long term, we’ve seen more progress in the sector’s digital transformation over the past six months than ever before.
No matter how far along their digital journey they were, each and every financial institution has now been forced to review and modernise its IT infrastructure. Progress had been made on this front over the past decade, but getting it right this time is business critical.
The banking industry has needed a technology shake-up. Up until now, it’s been reliant on legacy IT systems that have failed to allow the industry to adopt new technologies that other sectors have been completely overhauled by.
Of course, moving up this ‘digital maturity’ scale was never going to happen overnight for financial institutions. Banks have huge volumes of data on their customers. This in many ways has made digital transformation a scary word – there isn’t another sector that holds such personal and important information about its customers.
Current technologies have been designed to deliver robust and scalable IT infrastructure that doesn’t compromise on security, helping banks to now de-risk transformation. It’s why we’ve seen more banks transfer to cloud infrastructures, which in many ways are more secure than on-premise legacy systems. This is an important first step for many businesses in the sector, but it falls short of harnessing the full potential of technology.
We spoke to senior IT decision-makers in the industry to see how far along the digital journey they are. And it seems that the mammoth task of upgrading legacy systems is coming to an end for many, who are now getting to grips with how they use data more effectively.
Encouragingly, many reported a good direction of travel. For instance, we know that banks are making full use of their structured data – this includes things like names, addresses and credit card numbers. When used alongside technologies like machine learning, this data can help financial institutions uncover fraudulent activity on customer accounts in real time, allowing banks to take the necessary steps to block it.
But they could take this further still – particularly in terms of utilising unstructured data.
The unstructured data that banks hold includes information like audio, video and email files. These are key bits of data from communication with customers. For most businesses, unstructured data now makes up the bulk of the information they hold. For banks, it accounts for around 80 per cent.
The opportunities that analysing this data presents is huge. For instance, if analysed with ML, unstructured data can identify patterns in customer communication that could indicate whether an account holder may be on the brink of defaulting on a debt payment, allowing a customer service representative to step in and help the customer to avoid costly penalty charges.
Elsewhere, ML can be used to identify patterns in customer queries, giving crucial insight for the c-suite into the things customers are increasingly demanding. This allows financial institutions to respond and adapt and could even lead to new product development. Insights like these are crucial for an organisation to stay ahead of its competitors.
As customers are given more ways of communicating with their banks, the amount of unstructured data that organisations hold is continuously growing. But despite the opportunities that unstructured data presents, when we spoke to banks, we found that only 3 per cent of institutions were analysing this information. The potential missed opportunity here is enormous.
As the country emerges from lockdown, many organisations – across all sectors – will be looking at how technology can enhance its operations moving forward. Arguably, no industry will need to do this more than banking.
As customers increasingly look for new ways to communicate with their banks, while also making sure they’re getting the best service and value in this changing economy, financial institutions will need to work harder to firm up their customer relationships. Understanding their needs and concerns will be key to this.
This ‘new normal’ world is here to stay and adapting to it will be key for organisations if they’re to remain ahead of their competitors.