Bank of the future?

By Jason Bell

Banks are in transition. They are looking closely at their traditional core services, such as money management and movement, lending, facilitating investments and savings, and realising that today, something is lacking. In order to survive as their customers become increasingly digitally-oriented, expecting financial companies to be so too, the core of a successful bank of the future must be built around technology.

Simplicity is not proving easy

With the advent of cloud technologies and the huge swing to banking apps rather than bank manager appointments and branch engagement, technology is moving out of the datacentre. Everything is becoming more virtual, digital, and data-driven. Banks are beginning to predict customer needs and expectations, rather than catching up with them, but there’s still a way to go in this regard in order to become truly customer centric.

For many banks, there is a sticking point. They are saddled with legacy systems simply not designed to cope with the speed and rate of change in the digital age. While the priorities for all banks focus on simplicity of process and improved customer experience across the entire customer journey, the legacy estate still cries out to be served.

Forrester has released a report (summarised here) which finds that: “Although banks have largely focused their digital transformation efforts on driving down costs, such as through easy-to-use digital self-service capabilities and more efficient back-office operations, these innovations are still being built on top of outdated legacy technology and risk-averse cultures.”

Serving customers better

Today, the arrival of mobile-only banking services is often discussed, but these services will become the norm soon enough. While some banks have been through digital transformation, and some are currently in the midst of it, many have yet to fully embark on the journey, but regardless of where a bank may be, the industry is changing forever. “Different business models could impact up to 80% of existing bank revenues by 2020”, observes Accenture.

The question now is: how do banks ensure that they remain competitive and adapt to market forces that cannot be under-estimated? These forces include the need to manage data more effectively, the requirement for stringent compliance, the threat of cyber-attacks, and the overall backdrop of the need to reduce operating cost whilst delivering ever higher customer experiences.

Four changes you can bank on

In assessing how the future might look, it’s perhaps more appropriate to look at what might vanish, because with each behavior that assumes irrelevance will come a new one to supersede it. Behaviours define technology as much as technology defines behaviours.

  • Paper will go
    People pay by phone now, or are starting to. “Overall, the UK made 15.4 billion cash payments in 2016 – an 11% drop from the 17.2 billion seen in 2015, with the total number of cash payments being equivalent to less than half of all recorded transactions for the second year in a row”, reports ITProPortal. Everyone knows PayPal. New entrants (FinTechs) like Venmo are now also picking up the gauntlet.
  • Values will change
    The definition of money in its traditional, tangible form will change. It simply will no longer have to be physical. If datacentres can evaporate into the cloud, why can’t money? It is, after all, simply an accepted form of exchange, so if all parties agree to accept that the exchange can be represented in a different form, a virtual form, then so it will be. Convenience is all-important to customers. As mobility develops further, ease-of-use will be critical.
  • Complexity
    All of this drives the relentless war on complexity, which is the hallmark of legacy systems. All banks will be so agile in future that agility will no longer be discussed as a physical entity. It will just be the way things are done. An agile environment is one where more really can be done with less as organisations embrace the FinTech focus on cloud enablement.
  • Compliance headaches
    Changes to core technologies today assimilate challenges such as GDPR readiness into longer term strategies. GDPR is a driver for change and banks are attacking their data management practices and strategies with a vengeance. Data will continue to grow as the technologies to harness it grow. Regulations will evolve, but the lessons from GDPR will have stood many in good stead. All organisations will need to be masters of the data they hold. More tellingly, their ability to use it comfortably and confidently, to more fully understand what their customers want, will become ever more sophisticated and advanced.

The leaders of tomorrow

Banks are in a phase of challenging everything because the market, the consumer and technologies we have at our fingertips, are forcing it. Market pressures such as FinTech-thinking are encouraging banks to address core systems. What happens when constituent parts of those core systems are found to be poorly aligned with the needs of the business and the all-important needs of the customer? If there is no ready and better alternative, then the challenge is not much more than words. When there is an alternative, the challenge becomes action.

Banks need to become technology companies. This is a major shift, initially pioneered by FinTechs, and was once seen as a threat, but is now universally understood to be the optimum survival strategy for the digital age. Increased collaboration will be required between these organisations in support of open banking.

“In order for banks to weather the performance challenges that lie ahead,” suggests EY, “…they must prepare for a future led by innovation and technology. The pace of innovation continues to accelerate, and banks must have a strategy in place to ensure their implementation of new technology is effective.”

At a convergence point in the future, when customers expect more from less – easy, convenient interactions at the click of a button – cloud technologies will be delivering speed, efficiency, and the ability to make smarter decisions through the smarter use of data, and ultimately, absolute customer satisfaction.