• Thanasis Navrozoglou, President & CEO at Natech


• 01.06.2022 03:00 pm
#banking

Conference season is upon us and, with Money20/20 and Sibos still to come, there’s been lots of talk of the latest innovations. European banks – particularly smaller institutions and cooperatives – are being somewhat technologically excluded, left out of the conversation to deal with legacy limitations or evolving regulation before considering their role in developments in the digital world or the Metaverse, for instance. At the same time, a renewed focus on the actual customer experience, cross-border payments and standards, localisation, and permissions over products are driving forward change across the board.

Homing in on the banking front end

User experience can only be as good as the tech supporting it – the back end, the core banking and the underlying processing engines that drive any shiny front end. To reach the point where you can create front end experiences that delight, you need the right infrastructure in place to build it. Smaller banks simply can’t support putting all the bells and whistles on their offerings, so the user experience is understandably not on a par with bigger institutions or digital challengers. That’s where tech partners can enter the space with white-labelled solutions to plug those gaps.

Offering unobstructed and real-time transactions also plays into a great user experience. Time isn’t always as interesting to smaller banks and cooperatives, but real-time is fast becoming what customers expect, right across the banking and digital spectrum. Again, banks with the ambition to improve their front end through real-time, face the decision to build in-house, acquire a tech company, or bring in a tech partner to make it happen.

For all the talk of the front end, where we’re really seeing growth is in understanding a holistic view of how banks and banking systems interact with customers. That’s about far more than graphics and design. In the next year, the conversation will shift to the Metaverse and banking interactions in the intersection between our real and virtual lives. The banking technology industry will continue to challenge the status quo, in line with digital revolutions and technological advancements to how we live, work and communicate like humans.

Interoperability and cross-border standardisation

The good news is that security principles, in terms of how an institution should operate and how technology companies should maintain systems to ensure security, are fairly standardised across Europe.

The bad news is that little else is. Even with the introduction of PSD2 and other efforts to improve standardisation, little in the world of banking technology is applicable across markets. There are some unifying basic principles, but real cross-border payments and financial activity are still some way off. Different players balancing hundreds of different sets of regulations and ways of interacting with customers create a fragmented sector, stripping out the competition in the consolidated European markets. Lack of standardisation also makes it harder for tech innovation to occur because what was born in one market may not apply in another due to local constraints.

Brands that maintain a presence in multiple markets and endeavour to do business across borders have to adapt their tech to fit as well as develop deep knowledge of each market. The current solution to that is stripping things back to minimum standards. PSD2 only handles payments, for instance. But what about the rest – the vast majority of everyday banking interactions?

Localisation and championing regional banking

Localisation is about so much more than translation between languages. That’s the easy part. The real challenge is meeting the local needs and wants of users, what they expect to see, and how they want to interact with their bank.

Then there’s local regulation. We opened a sister company in Germany recently and had to translate and migrate products and workflows to be applicable to that local market, as well as add new integrations to comply with local authorities. That absorbs a huge amount of time and effort. Compliance ends up completely pulling focus from innovation.

Monolithic banking institutions are on the way out, in favour of open collaboration between tech companies and banks, services and ecosystem participants. In a crowded, consolidating European market, smaller institutions are balancing the need for greater efficiency with building the underlying infrastructure that will enable them to meet evolving customer expectations at the front end. We are team players often in life, and so we should be now in banking. Gone are the days of institutions trying to build their own solutions. Instead, collaborate to create something better. Improving integrations and interoperability will open up the regional banking sector – and tech firms lie at the heart of that change.

Permissions, not ownership

Software as a service is no longer news. Microservices and banking as a service are now shaking up how institutions can access the right infrastructure and build new solutions. By bringing in systems and know-how as a service, banks can stay on top of the evolution of technology without needing to invest periodically in new systems wholesale.

Banking as a service facilitates access to the right back-end systems, regulatory compliance and actual processes to enable institutions to create and innovate on top, rather than buying elements of their tech stack piecemeal and without value-adding services.

Innovation is all well and good…

As the financial services industry gears up for crucial conversations about how technology is driving change, financial inclusion seems to fall off the table. Innovation and the pace of change are important, but not every institution will be able to harness the power of emerging banking technology and some customers may never see the benefits. It’s important to couch any discussion of the next big tech developments against the reality of financial inclusion.