Digital initiatives remain a major priority for retail banks as they seek to meet the challenges of new regulations, disruptive start-ups and changing expectations from consumers. Christian Ball, head of retail – Atlantic region at GFT, writes

Addressing these competing and concurrent challenges, whilst making the transition to full digitalisation, is a daunting task for banks. How they undergo this transformation while still constrained by their historic business models, processes and methods of doing business remains problematic. Many still have legacy IT systems and architecture which consume significant amounts of their IT spending, making it difficult to invest in new innovations.

In this environment, digitalisation requires banks to adopt new technologies and re-evaluate their traditional business models in pursuit of strengthening relationship with customers. This process is already underway but the results fall short of what is genuinely required. Too many banks believe digital transformation means creating digital products and services whilst still maintaining existing business models and legacy systems.

This approach cannot be considered to be real digital transformation; it is merely cosmetic in its approach to change.

This point was illustrated by Mark Mullen, CEO of Atom Bank, one of the UK’s leading digital only banks. He said: “Banks are trying to be cool and hip and build super cool digital front-end, but it’s like putting lipstick on a pig – ultimately it’s still a pig and the new front-end is still running into an awful digital back end”.

In order to create a truly digital business, banks must put down the lipstick and make a more concerted attempt to understand the cultural and technological changes needed for digital transformation.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Embracing cultural and technological change

Digital transformation is about embracing innovative new technology and enhancing customer experience.

Established banks find themselves in the unenviable position of playing catch-up to their newer competitors. Digital only challenger banks and start-ups are beginning from a point where their business models and relationship towards customers are in a fundamentally different place to that of more established banks. Online banks such as Atom Bank, and Germany’s Fidor, are perfect examples of this situation.

They do not have to contend with historic business models or legacy IT systems and they can provide specific niche services targeted to particular customers rapidly and at lower cost. This fact highlights further the need for banks to become fully digital if they are going to survive and compete against their younger, more agile competitors.

At present, banks have been slower to address the seismic shift of technology from the preserve of large institutions into the hands (and pockets) of the mass market. This has driven change in business, society and consumer expectation.

The three waves of change:

  • Technology (technology used to improve productivity and data);
  • Connectivity (Low-cost, high-speed increase communication), and
  • Automated intelligence (Targeted services and information simplify decision making)

Financial service institutions are responding to the digital change to the three waves that have redefined the workplace and everyday life, changing how people interact.

The significant, era defining, changes that have and continue to impact consumer lifestyle and expectation trace their roots to these three distinct waves. They are neither sequential nor concurrent and have neither a start nor an end. Each wave has (continues to have) an impact on the other. Banks are constantly being buffeted by these forces of change taking place within the industry and wider society.

Moving to Open Banking

Financial institutions have seen a number of different approaches by challenger banks, start-ups and some notable fast movers such as BBVA, either unencumbered by legacy infrastructure or rapidly evolving from such heritage. They can rapidly deliver and deploy low-cost, market-ready solutions themselves or through third parties with highly reduced overheads.  They are more ‘platform’ like in terms of the operating model, focusing on the customer and data needs of a digital economy.

Banks need to change their approach in how they address their own infrastructure and agility issues. To make the transformation to a truly digital world, banks must adopt Open Banking. Regulation and cost issues are driving banks towards Open Banking. Regulators in the UK and Europe are pushing a model of ‘open banking’.

Open Banking is about creating more competition and transparency within the industry. In the UK, the Competition and Markets Authority (CMA) 2016 report concluded that traditional banks do not face enough competition in the market, with smaller newer banks finding it difficult to grow.

Banks will be required to share data they have historically held, 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 enable new services to be delivered and which can be specifically tailored to the needs of different customers.

A new relationship between banks and customers

Open Banking will radically transform the relationship between banks and their customers. In this relationship, power has shifted from the traditional bank to the customer. With this development, banks need to reconsider how they create value – it requires banks to adopt a customer centric and data centric view on how they do business.

With customer experience now at the heart of the new banking model, data has never been a more valuable commodity. The difficulty for banks is that they have always held vast amounts of data but have not always been good at interpreting this data and extracting insights. The prospect of best utilising data to support customers remains limited when banks continue to rely on legacy back-end systems that lack the functionality to support the needs of the front-end.

Digital transformation requires banks to show a commitment to innovation (and not just looking at new technologies but undertaking the software engineering to execute sustainable platforms) and a desire to develop a customer centric approach that is enabled by digital technology.

In 2015, the information technology research company Gartner, said of banks: “To be truly digital, banks must pair an emphasis on customer-facing capabilities with investment in the technical, architectural, analytic and organisational foundations that enable participation in the financial services ecosystem.”

In 2017 this statement continues to remain pertinent. With increased competition from disruptive challengers fintech start-ups and some fast adopters from the incumbents –  all offering new ways of doing business; remaining banks must ensure they ‘engineer in’ flexibility and agility of the business model to achieve digital transformation and meet future challenges.