By Mike Hampson, founder and CEO, Bishopsgate Financial

Mike Hampson explains how technology has changed the financial services industry over the past year. Banks that invest in technology are best placed to weather the continued economic and competitive headwinds, emerging as the leaders of the future.

Most people would agree that the coronavirus pandemic has been a catalyst for change. Financial institutions should be proud of how the industry responded to a crisis that wasn’t on any organisation’s radar. Faced with branch closures, banks’ digital transformation accelerated beyond everyone’s imaginations. They were able to keep operations running smoothly, rolled out new ways of working remotely, served customers facing dire

consequences, and delivered new products and services to market in record time.

Perhaps one global bank’s MD was right to mention: “The toothpaste is out of the tube on digital now.[1]”

Digital collaboration tools for long-term flexible working

One of the biggest technology changes has been the switch to home working. Banking executives we spoke to for our Change Perspective 2021 report[2], felt location-independent working is becoming the new normal.

The remote work transition has been incredibly rapid — and nearly total.  JPMorgan Chase [3]currently has 180,000 of its 200,000 employees working from home. Similarly, Deutsche Bank is considering a hybrid model for its workforce, allowing employees to work remotely for several days each week permanently. At HSBC, UK employees will continue to work in a hybrid model, as part of its cost-cutting programme, and ING bank[4] is allowing its employees based in Spain to work from home for the foreseeable future.

But for workers to continue to be effective in remote work, connectivity, IT infrastructure, and communication tools were found to be the most important resources according to PWC’s[5] recent Covid-19 Remote Working experiment.

Cloud-based technology 

The great pivot to remote working and in-person engagement, means financial institutions need to innovate and collaborate with their teams at a pace never before imagined. By adopting a cloud-heavy strategy, banking staff can access cross-functional and real-time insights.

Although cloud-adoption was already on the rise for this sector before the pandemic, COVID-19 has been an accelerant. In July 2020, IBM[6] announced that several global banks including BNP Paribas, one of Europe’s largest, would be joining several financial institutions adopting IBM Cloud for Financial Services.

Transparency and data analytics are the big wins. The cloud offers a huge opportunity for banks to synchronise their enterprise; to break down operational and data silos across finance, risk management, regulatory compliance, and customer support.

And by creating common, connected data sets, deeper, more sophisticated insights and analytics become possible; enhancing collaboration through new shared platforms and tools, and increasing the speed of decision-making.

RegTech solutions for banking compliance 

The big bet on the table is for traditional banks to have legacy modernisation as part of their digital change programme, and to do this, their operations, processes, and solutions need to be re-imagined.

No doubt, regulatory technology is helping banks automate their internal policy management and processes for compliance. As this advances, fintech players may now face disruption themselves. Traditionally one of their edges has been speed and agility in developing products, onboarding, and servicing clients.

Now as they become larger, they will attract more attention from authorities; especially if they try and cut corners in the name of making life easier for their customers. It’s therefore high time for fintechs to ensure that they build and maintain an appropriate compliance culture while handling risks.

Competition from the fintechs isn’t what it was

What’s more, competition continues to grow from challenger banks and fintechs who are looking to disrupt value chains by taking advantage of the agility, low cost-base, and rapid delivery of customer-centric propositions enabled by digital technology. Successful challenger banks such as Starling and Monzo, have demonstrated how rapidly innovations can be brought to market, and accepted by digitally-savvy consumers.

A report compiled by PwC[7] cites 77% of financial institutions will increase internal efforts to innovate, with many businesses embracing the disruptive nature of fintech.

However, some of the newer fintechs are struggling to maintain profitable growth as incumbent banks continue to improve their offer and roll out or upgrade their digital offerings. This may be because of inadequate scale, compliance issues, and limited product offerings, suggests the Change Perspective 2021[8] report.

Digital tools and capabilities for the new banking customer

Furthermore the same paper accentuates the dramatic increase in non-cash transactions, and the rapid adoption of digital and mobile banking by customers has been managed well by banks. This is thanks to their smart decisions around talent and technology investments. Beyond this, there will be increased adoption of AI, data analytics, and Robotic Process Automation (RPA).

Some progress has been made in using RPA and pattern recognition technologies to improve the detection of internal and external financial crime cases. Biometrics are also facilitating the Know Your Customers (KYC) processes.

A big challenge will be ensuring existing workforces have the skills to keep up, so a commitment to digital upskilling is essential. To date, implementation of RPA has been more challenging than expected although success stories are coming through. For example, Zurich Insurance Group[9] has achieved savings with the automation of manual back-office processes.

After a bruising year of disruption, the industry has learnt to operate in a different working environment, with no discernible decline in service to its clients. The impossible has rapidly become the possible. Banks need to keep that momentum going, so digital transformation can continue at pace. As one UK bank’s change programme manager positively says: “Growth must now come from a digital vision, not from a continued focus on cost, simplification, and efficiency.’’[10]

[1]https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021

[2]https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021

[3] https://biztechmagazine.com/article/2020/05/how-banks-can-prepare-networks-long-term-remote-work

[4] https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021

[5] https://www.pwc.com/mt/en/publications/the-covid19-remote-working-experiment-final4.pdf

[6] https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021

[7]  https://www.information-age.com/technology-finance-banking-sector-123471800/

[8] https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021

[9] https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021

[10] https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021