- 21.07.2021 02:45 pm
- 02.07.2021 02:00 pm
- 01.06.2021 11:15 am
- 15.12.2020 02:15 pm
- 18.11.2020 12:15 pm
What exactly do we do with our money? Aside from daily purchases, we store it. Attempt to save it. Mostly in banks. Then, we shuffle money between companies and people as we transfer, invest, borrow or lend. Finally, we trade it off for other assets.
However, the Covid-19 pandemic has exposed operational and technical flaws in many financial institutions. And banks are tasked with responding to the immediate crisis while adjusting for their long-term strategic plans. Unfortunately, many underlying problems will outlive this moment in time.
Many organisations with both legacy technologies and cultures are having trouble keeping up with the rapid pace of change in today’s world. Financial Services companies are among the most challenged by this. This was true before the virus descended, and it’s even truer now.
Banks must, therefore, rise to said challenge by changing their business strategies and reimagining their role in the world of today. In the face of exponential technologies, new growth models, fresh ways of thinking and original solutions are emerging.
And as we edge further into the decade, further (massive) acceleration is on the horizon. Banks can prepare for the impending changes to financial services by adopting some, if not all of the below strategies.
1. Embrace a ‘Jump’ Model
Legacy banks are under pressure to become more aggressive and disruptive than before. It’s no longer enough to tinker with legacy infrastructures founded upon the basics of a bygone era. Large engineering and architectural evolutions have not reaped the expected benefits, so banks must look to new strategies.
Fintechs are competing aggressively with large financial institutions. Being more nimble and agile, this burgeoning competition can meet the needs of customers quicker and more efficiently, spelling trouble for legacy banks who cannot replicate the key qualities helping newcomers succeed: cloud nativity, fintech-friendly architectures, customer-led cultures, efficiency enabled by straight-through processing and careful targeting of high-value digital-natives.
But banks who adopt a ‘Jump’ model: building a new shell onto which the existing business can migrate – leaving behind older technologies that stymie agility, are far more likely to result in a substantial return on investment, whilst addressing customers’ needs and increasing brand loyalty.
2. Become a tech company
Engineering transformation and cloud enablement have been top-of-mind for most, if not all large financial institutions and rightly so. Old technologies and processes won’t be enough to address the rising expectations of customers. But it’s about much more than that – namely how the business views itself.
To remain competitive, banks need to see themselves as tech companies. Without changing their frame of mind, legacy businesses won’t be prepared to handle the disruption from digital newcomers. Simply updating old systems and processes won’t be enough. Businesses need to make engineering and cloud transformation central to their strategy.
3. Overhaul payment systems
Banks and other fintech players are looking into alternatives to traditional payment systems, which are mostly outdated, cumbersome and concealing transactional fees. Banks can truly differentiate themselves to customers by increasing the speed of real-time payments and moving all transactions to a service like Faster Payments, which allow customers to make electronic payments in hours rather than days, 365 days a year.
There is also a great opportunity to leverage new regulations on New Payments Architecture (NPA) as a catalyst to drive this payment transformation. It will be the biggest change to the way payments are processed in the UK since the 1960s, ensuring payments are safe while encouraging competitive innovation and unlocking new business opportunities, such as smarter uses of banking and payment data.
4. Capitalise on data
We will continue to see a shift toward systems of engagement (SoE): technologies that help businesses coordinate the customer journey through a series of personalised interactions. These touchpoints on social media channels, mobile apps and elsewhere drive greater engagement.
With a cohesive SoE in place, data collected during these interactions across platforms will not be siloed and disjointed. Rather, through the SoE, they will be easily managed and available in real-time. A functioning API ecosystem, in which collaboration enables superior experiences, will enhance the data’s potential.
Traditionally, banks have focused on system of record, a centralised, authoritative database that’s accurate and reliable. The more recent system of insights paradigm looks for greater understanding throughout various databases, which can handle complex queries and is highly scalable. But the trend for more channels of information, more dynamic analytics system will continue toward SoE.
Many companies capitalised on data and access to banking APIs to create innovative business models. Banks now realise they too can benefit from this trend. By treating APIs as “first-class” citizens, they can create partnerships and multi-sided platforms to offer new services.
5. Democratise machine learning
Once data is easily accessible from system engagement, the possibilities for providing intelligent solutions are endless thanks to the expansion of machine learning. Most banks are creating machine learning platforms dedicated to driving self-service and embedding controls and governance to ensure built-in compliance. This level of automation will completely upend banking as we know it, especially the pricing of products and the leveraging of customer signals to discover insights. Banks will increasingly invest in technologies like Robotic Process Automation. The real power will be clear when failure scenarios become self-healing thanks to how RPA has been combined with AI.
6. Move to a ‘team of teams’ model
In recent years, businesses have appreciated the role of cross-functional teams in solving smaller problems. But this hasn’t helped banks solve their bigger problems, such as balancing their cost-to-income ratios or improving their net promoter scores.
Teams cannot think exclusively of their particular roles and must understand the organisation’s overriding goals. Though not a new concept, the “team of teams” mindset will become even more significant as time goes by.
7. Accept the prominence of blockchain
Blockchain shows tremendous promise but has always failed to scale at the speed many expected, largely due to the regulatory climate. Once regulators embrace blockchain, it will be an important tool for banks to prevent Internet fraud or data leaks.
Going forwards, the public’s relationship with banks will continue to change thanks to other emerging technologies, i.e. IoT, The convergence of AI, robotics, cloud computing, virtual reality, blockchain and other technologies will completely transform the financial services industry.
Though no one can predict the future, we can prepare for it. We do know that old ways will no longer suffice and banking will never be the same.
Get FinTech news headlines, videos, stories and product reviews on your mobile device. Download Financial IT App for Free