By Bryn Barlow, Partner, ISG.

In recent years, traditional banks have faced new competition from challenger banks, FinTech start-ups and Big Tech companies moving into the banking sector – and if you’re in Asia, all of these combined as new ecosystems and platform-based networks like Ant and Tencent evolve.

They’ve had to adapt to compete with more agile challengers – businesses free of legacy systems and processes, which innovate and have a different risk appetite. Many of these challengers are digital-first by design. They know the value of customer data, and they use it well by creating products and services that their customers need and want.

Critically, new leaders in banking have built artificial intelligence and machine learning into the heart of a new customer experience generation engine, and foregone the product silo thinking of old.

While traditional banks have gradually introduced more digital services, most still had to adapt far more quickly than they were used to when the pandemic hit, and they’ve had to build new services around legacy systems and retrospective governance models. While their digital-native competitors seamlessly switched to virtual working and services, traditional banks had a harder time adapting as human-centred operations started the adjustment to our new normal.

The pandemic has shown traditional banks that digital transformation isn’t optional. Making the switch to digital and automating key processes ensures the bank is both flexible enough to change rapidly when needed and resilient enough to withstand unforeseen challenges and crises.

Traditional banks must be agile to thrive in a post-pandemic world

The traditional view of banking is that it is generic, product centric, and slow to innovate around customer needs. Challengers, on the other hand, are seen as fresh, innovative and mobile-first.

That may be a bit of an unfair characterisation, but it’s true that the legacy systems of traditional banks present an obstacle to digital transformation. They hold a wealth of data, but because it’s stored in so many different systems, they have a harder time getting any real value from it – over half of data in laggard banks is effectively “dark”.

When the pandemic hit, the need for digitalisation accelerated, as people’s priorities shifted. Our habits changed, and our aspirational spending took a backseat. For many businesses, their focus shifted to survival. Banks were under pressure to support people who’d never really needed it before, while at the same time, transforming their own operations to keep essential services running while most of their staff worked from home. For institutions that still largely rely on human centred and product aligned processes, that was tough.

Now, people want fast, flexible and anticipatory services from their banks. We’ve grown to expect everything delivered digitally. Banks that don’t keep up with this risk being seen as out of touch and out of date.

How can traditional banks become agile?

1. By using artificial intelligence, machine learning, and automated systems

Many banks are already using machine learning to aid in fraud detection and fight money laundering, but their legacy IT systems are hindering further customer centricity.

Traditional banks must move business away from their legacy systems and switch to digital to benefit from the advantages that automation, AI and machine learning can provide. It’s the only way they’ll be able to compete with their more agile digital competitors.

Automation and AI could be saving traditional banks significant time and money by, for example, giving them the ability to make instant decisions on loan applications. Challenger banks and other FinTech providers are already providing these services, and customers are noticing the difference.

If the relentless advance of ecosystems from Asia continues as predicted, that will not be enough. If your customer is consuming financial services through new channels or social media connected networks, then your customer has literally “left the building”.

2. By putting customer experience at the heart of the business

Ask most customers what’s the most important thing for a bank, and they’re unlikely to say ‘the customer’. Now is the time for banks to put customer experience at the forefront of what they do – truly – I think even the challengers have been somewhat lazy in their much proclaimed “re-invention of the banking experience”!

As we see the next generation enter the workforce, banks are finding that they demand more; as we engage on platforms, this generation stops coming to the branch or heading to your app.

Banking systems and services need an overhaul, to be completely redesigned to work for the customer. It’s the difference between providing a “mortgage” experience, for example, as opposed to a “buying a house” experience – a completely different perspective.

People are used to living flexibly now, and they expect the same sort of flexibility from their banks. If they don’t get it from the bank their parents used, they’ll find it with a challenger bank easily enough.

3. By realising the need for getting data-driven insights

More traditional banks are realising the need for increased agility because they want to get more from their data. With the right system in place, banks can start using predictive analytics to forecast customer trends and behaviour – it’s what their digital-native competitors are doing, and without it, traditional banks are operating at a disadvantage.

By focusing on how to make the most use from their data, banks must create a new capability to put algorithms and machine learning behind a customer experience generation factory.

The insight traditional banks can create through digitisation and automation will increase their resiliency and turn their vast industry experience into a weapon to use against their digital-native competitors. Now is the right time to commit to the change.