Customers want banking and financial transactions to be as easy as shopping on Amazon or ordering takeaways from Deliveroo. Open Banking has the potential to make this a reality and, in so doing, create stronger customer relationships. But only if banks get their data, security and cloud infrastructure management strategy right.

By Jason Hand, Global Account Executive – Enterprise Sales, Commvault

App-Based Banking & Financial Services

If the recent growth in trading apps like Robinhood and the controversy surrounding Gamestop shares have taught us anything, it’s that there’s considerable consumer appetite for apps that deliver easy-to-access banking and financial services. Millennials, in particular, seem to love them as they make speculating on the stock market, DIY investment, and pension management much more accessible, manageable, and (dare I say) fun. Whether the UK government had an early sense that this would be the case when it launched its Open Banking initiative back in 2018, or whether — as stated at the time — it was just intended to increase financial sector competition, the impact has been none-the-less been transformational.

Resistance and Acceptance

Open Banking forced the UK’s biggest banks to securely share their data with trusted third-party financial services providers via Application Programming Interfaces (APIs). The banks initially greeted the project with a great deal of scepticism and resistance but ultimately came around to the idea. Earlier this year, for example, NatWest launched an Open Banking-led service called Payit, which enables businesses to send payments — such as refunds, compensation payments and emergency cash payments — directly to customers without needing their bank details.

When implemented well, digital and app-based banking is as easy as using a mobile shopping or travel app. No wonder that, at the end of last year, over three-quarters of the UK population were using some form of online banking, and one in ten people had switched to a digital-only bank. With so much potential to create a similar customer experience — and so much to lose if they fail — the more established UK banks are under pressure to deliver on digital and app-based services too. But their success will depend on how well they manage their digital data and, in particular, how willing they are to adopt more agile, scalable, cloud-based solutions to underpin their new services.

A Matter of Trust

Our best-known banks still have a lot of catching up to do. Open Banking laid the foundation for a new generation of banks like Starling, Monzo and Revolut, and app-based financial services such as Wealthify, PensionBee and Plum. It also enabled financial service providers to create stand-alone app-based financial services using authorised connections to customer current or savings accounts. Digital banks like Starling have gone one step further and provide in-app integration with selected partners such as mortgage brokers, insurance providers and bill management tools to create what the company refers to as its ‘Marketplace’.

These offerings have helped app-based banks create fierce brand loyalty and strong customer relationships and win customers from the high street. So, if getting in on the app scene could prevent customer churn and even attract new customers, why have the best-known names in UK banking been so slow to grasp the proverbial nettle? Maybe because to do so means undertaking a total reassessment of security and data management strategies. Banks like Starling have a huge IT advantage as they are starting from scratch with no legacy IT systems. They are cloud-first and, as such, able to quickly scale services, process huge amounts of customer data and interface seamlessly where necessary with the APIs from other members of the Open Banking community.

Fortunately, there are a few things that more established banks can do: to begin with, they could switch to a single data management solution. Banks have traditionally used several different products to manage their data. This adds complexity and means they need more people to oversee them operationally. It also adds cost, risk and ultimately will not align to their digital transformation agendas.

Running multiple data management solutions makes it harder to get a holistic view, understand customer behaviour and predict future trends. It also creates unnecessary security risks. Consolidating data management platforms reduces these risks and costs. At the same time, fewer inter-app data transfer points decrease the number of potential weak-link entry points for hackers and cybercriminals. From a practical point of view, using a single data management solution also enables all relevant data points in a hybrid world to be viewed on a single pane of glass — making it much easier to digest, interpret and deliver data management as a service back to their internal clients.

Automating data management components can also improve security and cut costs by reducing human contact. In addition, it enables faster and more accurate data management that can accelerate cloud adoption, where data management is key to success.

A Cautious Approach

It’s worth saying that the biggest banks have been slow on the uptake of both public and private cloud technology and are clearly still concerned about security and privacy threats. This is despite the fact that cloud computing — particularly with a zero-trust approach to security — has become much safer and carries far less risk.

In mid-2019, the Bank of England published a report that estimated the world’s largest global banks conducted just a quarter of their activities in the public cloud or software hosted in the cloud. But change is happening, albeit slowly. Larger banks have started to recognise that cloud computing holds the key to forging strong, enduring customer relationships — allowing them to ramp up popular online services and safely store, process and mine customer data.

The maturation of the hybrid cloud market may have played a role in increased adoption and allayed many of the sector’s previous doubts. A hybrid cloud infrastructure combines public cloud, private cloud and on-premises architecture, giving users the flexibility to keep some applications and systems (those with particularly sensitive information, for example) within their own four walls while still migrating other systems.

Conclusion

With so much change taking place within the UK banking sector, data management has never been more critical. Open Banking, consumer demand for digital banking, and app-based banks are all shaking up the market. But the threats from cybercriminals and the risk of falling foul of FCA regulations are still very much present. And, while navigating all these challenges, banks still face pressure from shareholders and investors to make a profit, retain customers and grow the business.

For these reasons, data management strategy — and linked to that, the pace and effectiveness of cloud computing adoption — are now two of the most significant determining factors in how banks build and maintain customer relationships, and improve the overall quality of their customer experience.