With a wave of digitally-focused challenger banks coming through, it’s clear that more traditional high street institutions are having to take a fresh look at their technological infrastructure if they are to begin competing on an equal footing, never mind taking a lead.
In order to stave off the increasingly sophisticated threat of the likes of Atom, Mondo, Monese and Starling, the more established retail banking leaders have to start taking a leaf out of their book by rejecting legacy models and making a leap into brave new territory.
Effective, secure and fast mobile banking matched by joined-up service design is proving to be a major disruptor as we continue to see a decline in physical branches and a move towards a fully digital service.
More and more, the bank is becoming a virtual concept rather than a high street or call centre entity – though many still want the peace-of-mind that accompanies talking directly to experienced banking staff.
The picture is not looking good for the traditional retail institutions with significant underinvestment currently the norm; indeed it’s thought that digital latecomers could see up to 35 per cent of net profit eroded, while those maximising its benefits may realise a profit of 40 per cent or more (McKinsey & Company, 2015).
Essentially, those that are failing to make a meaningful transition are only putting off the inevitable that is required to protect against the risk of revenue loss – the real type of investment that could create a differentiated customer experience featuring truly innovative digital applications.
Regular bad press and sustained pressure from financial services regulators tells us that the old guard is now facing a crossroads; adapt and invest now, or cling to outdated core systems that could eventually prove catastrophic. The latter course risks a situation where banks fade along with their older client base.
Clearly, we’re all going increasingly mobile – we expect to now do everything with immediacy on our smartphone from any remote location – and traditional banks must reflect and offer this agility if they are to keep our cash and custom. In other words, digital banking is the key battle ground, and the new kids on the block are often doing it better, while simultaneously avoiding traditional pain points in the customer experience.
Nevertheless, while increasing digitisation might mean cost savings, it’s also often accompanied by the double-edged sword of less customer engagement. Analysis suggests that it’s a delicate balancing act, with lack of engagement easily triggered by a less-than-preferred channel, giving rise to a situation where the customer could walk away.
In that sense then, the challenge is on to bridge the gap and ‘humanise’ the digital banking experience; to provide some of the comforts of the physical branch alongside the agility of the virtual bank. Either way, it’s clear that innovation in itself is not enough. Digital convenience must be matched by engaging customer service at every step of the process.
The cloud represents a compelling answer. Through cloud migration and targeted, determined action, banks can handle big data, centralise everything for speedier transitions and realise cost reductions, while still meeting high customer expectations. The ability to add new business functionality quickly is another major asset, while cloud providers’ increasing drive to heighten security and meet compliance demands is making the cloud a natural choice for financial institutions.
However, the ability to maintain service in all circumstances could be the real differentiator. Moving to a cloud solution that is designed to provide a high level of resilience is hugely attractive to the banking sector, and that is where it can excel.
Legacy systems can also work in harmony with the cloud, so the move from old to new doesn’t have to be so dramatic and daunting.
As a strategic platform for financial institutions looking to improve their services, the cloud is difficult to rival; in fact, it’s more a case of when, rather than if, banks will migrate their systems. Just how easy they want to make it on themselves though could be the real long-term question.