THE FUTURE OF DIGITAL BANKING

Andy Hirst, Vice President, Banking Solutions

Like every other industry, banking is faced with a wide range of challenges and opportunities as a result of dramatic digital disruption. Whether through the role of mobile applications, the changing nature of customer expectations in retail banking or the need for integrated back office and front office systems that enable institutions to meet customer needs, regulatory requirements and drive efficiencies. Change is a constant wherever you look.

We recently brought together leading players in the banking sector, including senior executives from prominent banks including HSBC and RBS as well as several leading Fintechs to discuss what the future looks like and how this change is manifesting itself. These individuals are dealing with the implications of digital innovation on a daily basis, and have first-hand experience of what it means to adapt to digital forces – whether as an international bank, mutual or Fintech start up.

What seems clear is that whichever perspective you’re coming from, there are a series of consistent drivers disrupting and challenging the sector. Our discussion led us to three key areas that are driving the disruption and influencing the future of the sector.

Firstly, there is an evolving dynamic between the interests of legacy systems –that is, the technology infrastructure that institutions know and can rely on, and the expectations and needs of customers.  Digital disruption means it has now become essential for banks and financial services institutions to adapt in order to survive and successfully address the needs of their customers. For instance, internet banking has allowed customers to access banking services through time sensitive touch points, empowering them to take ownership of their finances and gain access and deeper insight into their financial lives. Equally, mobile banking has led to on-the-go, real-time banking while also changing the needs of customers for retail banking interactions.

What became clear in our discussion was an overriding consensus across banks and Fintechs that customer-centricity will ultimately drive the path of digital innovation. This might mean, for instance, customers being able to cherry pick the services they need through as few touch points as possible. The bank might become the aggregator of services – a platform for different products. Customers may also begin to more actively draw insights on their spending patterns through automated systems that manage personal finances more proactively, drawing upon accounts in different locations through various digital platforms.

All of this is only possible by having the right infrastructure in place to adapt – often entailing a rethink of legacy systems, especially for large banks whose systems have evolved in organic ways. Delivering on new customer expectations therefore requires a fairly radical examination of the systems in place and their ability to integrate across platform and operation.

Secondly, Fintechs are growing in importance and are increasingly finding new ways of collaborating with the traditional banking industry. Large banks have evolved over decades through acquisition and organic growth, which often means they have relatively complex systems and processes. In our roundtable discussion, Fintechstouched on the challenges of engaging with these types of organisations.

For start-ups that are used to nimble and agile decision making, a large multi-national bank can feel unwieldy. But a mutual understanding of each party’s starting point can overcome these hurdles. Banks have systems in place for good reason, often regulatory, and by virtue of their size corporate structures exist to provide appropriate oversight. This isn’t to say that traditional banks aren’t deeply invested in and motivated by the opportunities of digital innovation that partners in the Fintech community can offer, just that getting to a point of collaboration might be a more involved and delicate process.

Understanding these dynamics, embracing complexity and being tenacious (on both sides), is the only way of reaching meaningful and fruitful areas of partnership. Based on our discussion, there is a clear realisation that more can be gained through collaboration than in facing off as competitors. For instance, one vision explored in our discussion was the possibility of a future in which Fintechs act as the public face and banks the backbone infrastructure of the business.

Thirdly, one of the driving forces behind current digital disruption in the sector is open application programming interfaces (APIs). These platforms are enabling an increasing number of legacy organisations to share data, making it easier to innovate and take advantage of the latest market solutions. This, in turn, is helping to close the gap created by competitive advantages and in future may drastically change  the way banks interact with each other, from competitive to collaborative.

And while financial leaders speculate abouthow open APIs can drive better connected banks, the reality is that the majority of bank account holders have accounts with more than one financial institution, meaning that the opportunity for these organisations to operate on one neutral platform is already possible. The ability for third parties to run on one single platform enables users to mine data from all accounts, significantly simplifying personal financial management.

But better-connected banks need to be both technically able and culturally willing to make these changes. Bringing together banking leaders and Fintechs for our recent roundtable discussion, it quickly became evident that there is a broad acceptance of the need for change and a willingness to embrace the complexity of digital disruption for the benefit of end users. That’s not to say the path ahead is easy, but it does mean the vital cultural change is set in motion.

These three observations seem central to the challenges and opportunities our sector is facing.

Digital banking is ultimately a trend driven by the expectations of customers. But it also enables simplification and efficiencies too. In an ideal world, these forces are mutually supportive, but what exactly is the path ahead? Is this possible, and if so, how can we navigate through the complexity that confronts this type of disruption?

There is much anticipation around how this industry will develop as a result of technology, and while there still is a great deal of uncertainty, there is also great optimism about what can be achieved. We have the capacity to incorporate some of the most advanced technology into modern day banking, including the power of Internet of Things and Artificial Intelligence. While we may not know how exactly this technology will shape the future of banking, it is evident that its power for connectivity will completely change the game for banks and Fintechs – change that is already being driven by customers and their expectations and needs.

Andy Hirst

Andy Hirst is the Vice President for Banking Solutions for SAP, where is he responsible for helping customers in the financial services industry achieve their digital transformation goals. He has a vast amount of financial services industry knowledge, and holds an MBA in Marketing from the University of Bradford.