The evolution of institutions: how to make banks competitive in a digital landscape

When we talk about banks, we often refer to them as “financial institutions”. For many, they are just that: institutions. Bastions of the high street, reliable and trusted.

Traditional banks can learn from fintechs to ensure they stay relevant

However, over the past 15 years, the relationship many Britons have with their banks has irrevocably changed. Where a weekly trip to the local branch was once a given, most of our interactions are done now at a distance. Like an old school friend you once saw every day but now lives the other end of the country and you only exchange emails, messages and calls.

Much like the rest of the high street, demands have evolved and the services we, as consumers, expect and need have changed. As technology has given us greater flexibility and freedom in other aspects of our lives, we want those benefits from our banks too. The ability to access our money on the go; make and receive payments instantly, wherever we are; and speak to our banks urgently on those occasions where things might not have gone to plan.

These changes predate the pandemic and as such can’t be put down to an unforeseen circumstance. But still the events of the last 24 months have solidified and accelerated these trends. So how do banks learn from what has happened to date and how can they flourish moving forwards?

1) Learn from the fintechs

It is important to stress that our traditional banks are not Luddites by any means. Every major bank has a substantial digital offering for its customers that has been rolled out and fine-tuned over a number of years. We’re long past the period of minimum viable products and apps for iOS only. Yet there was a time when they were behind the curve.

Being an institution implies certain characteristics. Not necessarily intransigence, but an established way of doing things that might take time to change. As the clamour for digital banking first grew there was a surge of fintechs and neobanks all too ready to satisfy that demand. Able to innovate and iterate at pace, these new players all shared a common characteristic: a customer-driven approach.

While the gap between old and new players has been closed, it’s clear that what the neobanks offer resonates with consumers. Research by personal finance comparison site Finder suggested that as of January 2021, 14 million Britons had accounts with digital-only banks, and that number is only growing.

It stands to reason then that traditional banks should try to learn from their newfound competitors to ensure they stay relevant – and embracing a fully customer-centric approach would be the best place to start.

As expected, fintechs adapted well to the pandemic, quickly deploying new features that allow customers to easily continue their banking tasks such as opening a current account, making deposits or taking out a loan from the comfort of their homes.

This is something that traditional banks can continue to learn from, and we can expect to see them adopting a more agile approach in the future to remain resilient against external disruptions.

An agile approach means new systems and ways of working that help organisations move rapidly and cost-effectively, whilst maintaining good service for the end-user, or customer. In practice, this means banks will be able to deliver their mobile banking apps and capabilities faster to market, and with improved quality and business value.

2) APIs are the way forward

It’s well-established that it’s easier to turn a jet ski than an oil tanker, and in the banking world, our traditional financial institutions are the oil tankers. The legacy systems and processes they have built their success on are now a barrier to future success in a fast-moving digital world.

Existing IT infrastructure can make it difficult to integrate the technologies which would deliver the services that customers want. As such, building and deploying said services is a costly and time-consuming process. This is without taking into account any possible disruptions to existing services for their sizeable consumer bases.

Banks need to be able to upgrade their services one step at a time. This requires rethinking their technology stack and breaking it into apps. This would make smaller, yet more impactful, upgrade projects possible.

Adopting an API (Application Programming Interface) approach – software that allows two applications to communicate – would enable banks to ensure that all these apps communicate with each other, improving data sharing and the experience for both customers and employees.

Using an API approach doesn’t automatically mean using hybrid clouds and SaaS but makes it easier for the industry to use them. Banks will then be able to utilise hybrid cloud and SaaS to achieve cost and agility improvements, transforming the banking experience for customers and enhancing the insight for the company.

And that’s not the only challenge that banks will face – without a flexible software infrastructure, they leave the door open to cyberattacks. The sector holds a large volume of personal data and money, making it a prime target for cybercriminals. As such, leaving any cracks in their defences is a risk they can ill afford. Remaining digitally resilient is considered a key enabler to success in today’s hyper-competitive landscape.

3) Choosing the right third-party provider

The rate of change in the financial sector shows no sign of slowing. As the first wave of fintechs all those years ago become established players, there is no shortage of new challengers with new services coming through the ranks.

As innovation continues apace, it would be unfair to assume IT teams at banks and other financial institutions could be experts on every single new threat, trend or latest innovation. So, to truly be ahead in today’s competitive landscape, businesses must look for partner organisations who are experts in their field to provide knowledge and resources to understand the challenges they face and how to approach them.

Following the turbulent events of the global financial crisis of 2008, the regulatory landscape has become stricter, and a robust compliance culture has become the norm. This is to be expected as the punishments become much harsher for those who do not comply. For instance, GDPR has increased the expectations on how personal data is collected and managed, raising the penalties accordingly.

Choosing a knowledgeable third-party vendor who can execute a strong digital resilience strategy, is regulatory-compliant and can keep them ahead of the competition is essential. Financial institutions will be able to improve regulatory malpractice and learn from their providers on how to broaden technology innovations. Moreover, this will allow them to thrive in this new working environment and adapt to consumer demands and evolving trends.

As financial institutions are preparing for a fully hybrid world, they need to ensure they only launch services that both staff and customers will want to use today. These must be able to be upgraded and scaled as new innovations pervade our daily lives to always stay one step ahead of the competition.