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The COVID-19 pandemic has accelerated the digitisation of the financial world with clout and at breakneck speed. While banks became increasingly tech-focused pre-2020, it’s clear that financial institutions have stepped it up since the outbreak of the crisis, transforming their process handling to help fill the void created by lengthy queues on telephone or email helplines. But there is so much more potential on the fintech horizon for financial institutions, ultimately paving the way to an all-new DIY finance offering for customers. But the onus now lies with the institutions themselves – they must seize every opportunity that lies ahead. To reach this goal, here’s what banks should start prioritising – and fast:
Taking an API-first approach
Leading fintech experts have long claimed that financial institutions must keep their heads in the cloud and feet on the gas pedal if they wish to become market drivers. This may be true, but an under-discussed secret to securing modern banking success is the quality and implementation of Application Programming Interfaces (APIs).
After all, cloud just provides on-demand access to computer resources – it’s the APIs that form the magic glue within it. They unleash the flow of information between applications, helping them ‘talk’ to each other and provide analysis which, ultimately, helps shape new products. An API-first strategy, combined with big-data, has the potential to unlock a win-win scenario for everyone:
Despite this, ‘API’ is still an anacronym for an isolated ‘IT matter’ at some incumbent institutions, rather than a key component of the overall digital strategy. Introducing an API-led approach into an already jam-packed change calendar seems risky and downright expensive for many banks. This often leads to APIs being disregarded – or worse, tentatively implemented – blocking APIs’ full potential for enabling innovation. What’s left is file-based transfers of data and outdated messaging platforms.
In order to move towards an API-led ecosystem, built on robust integrations between financial institutions and businesses across a range of sectors, in-house developers as well as external providers and fintechs must become API ambassadors, gradually enabling APIs to form a central part of every financial institutions’ long-term strategy. From better documenting APIs’ impact in-house, to sharing best practice across the developer community and moving to modern BPM tooling for workflow management –an API-first strategy is vital to offering best-in-class banking and fully satisfying customers.
Money management? You can Do It Yourself
Lastly, from this year forward, banks must reflect customers’ potential to do their own DIY finance. In fact, the days of tallying up the cost of a house, before entering intolengthy mortgage negotiations with an advisor,are set to disappear.
Instead, financial institutionsmust prioritise using the appraisal mechanism, plugging into an expanded range of trusted data sources including things like credit history information, Google Maps indicators as well asfiscal and pension data, and pair it with the newest machine learning technology. They should leverage document management systems which will enable customers to upload key documents to the application straight from their smartphones, leaving RPA behind the scenes to fill in the gaps.
With customer permission, this will enable banks to build accurate consumer profiles, helping buyers rapidly find out exactly how much they can borrow. The same applies to small businesses. With over 50% of SME lending applications requiring manual revision, entrepreneurs will also follow this same premise to instantaneously find out how much financing is available to them.We willsoon see smarter straight-through-processing (STP), finally erasing manual processes that have complicated banking for consumers and businesses alike for too long.
From ATMs and online banking to roboadvisors, fintech has taken the world by storm and made significant changes to how consumers manage their finances and the way banks conduct business. The adoption of tech has many benefits for financial services, from gaining a wider clientele to openingthe market to increased competition. This naturally poses a challenge, too–traditional banks risklosing their monopoly and mustcompete with innovative challenger brands. Incumbents have felt this shift and have tried to adaptby exploring new technologies and incorporating them into existing legacy systems.
But this won’t suffice.
While fintechs have managed to recreate a “human touch” throughcustomer-centric digital platforms, traditional banks often struggle tokeep up.What they actually do is merelyimitate a “fintech feeling” focused on superficial front-end improvements, remaining hesitant from a compliance and regulatory perspective in fully adopting the latest tech. A common fear amongst incumbents is that, by adopting the latest technology to attract new consumers, they could lose sight of their security, data protection, risk management and compliance. They’d rather stick to legacy software and the perceived ‘control’ over risks, instead of taking the plunge to modernise their systems and boost overall CX.
Some of these concerns hold merit. However, going forward I predict incumbents will aim to find a better balance between innovation and conservatism in order to remain competitive in the long-term. There are ways in which banks can outpace fintechs without taking unnecessary risks:
We’re already witnessing the beginnings of this change with the closure of bank branches, but what digitisation can truly offer the world of financial services is yet to be revealed. Banks and other institutions now have a golden opportunity to pursue a customer-central digital strategy – but they have to be in it to win it. Throughout this year and beyond, institutions must fully embrace every crucial weapon in their digital arsenal, ultimately paving the way to a fintech-first world of slick APIs and DIY finance.
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