The new reality of banking and the factors behind it

By Yobota CEO Ammar Akthar

The financial sector has always been a difficult industry in which to innovate.

Processing digital change in the past has been notoriously expensive and time consuming and the strict regulations imposed mean it’s never going to be easy.

However, in recent years this sector has had no choice but to embrace digitalisation and move away from traditional methods of banking. In the past, banks have relied on customers just staying put. Customers have generally been risk averse with their money and scouting out the best deals when it comes to banks has been often seen as taxing. Technology has changed all of this.

We have now entered a new reality of banking where technology is at the forefront of everything. A new report by Ernst & Young found that UK customers in 2017 logged into mobile banking apps 5.5 billion times and had 5.5 million webchats with their banks. Technology isn’t just helping banks to connect with its customers, it’s also being used for decision making. Banks are drawing on big data and advanced analytics to make informed decisions in sales, pricing and customer experience.

Ammar Akhtar
Ammar Akhtar

Technology is only expected to drive further transformation. PWC Global Report Financial services technology 2020 and beyond: Embracing disruption found that advances in robotics and AI, blockchain and IoT will play a fundamental part in how banks will operate in the next few years with 63% of insurance CEOs stating IoT will be strategically important to their organisation.

So the new reality of banking is one where technology leads, but what are the factors behind it? We’ve identified three that we believe are the driving forces.

  • Regulation

Regulation is a huge factor behind the transformation. Consider PSD2 and in particular the open access changes as part of XS2A, or the new ISA rules introduced in the UK – traditional banking infrastructure simply cannot react fast enough to take full advantage of the opportunities these changes present. They require changes to banking IT infrastructure, and an upgrade of legacy systems in order to conform, which is extremely expensive. Complete overhauls and continual updates to these applications take months, and stretch even the biggest of IT budgets, making switching to a flexible, already digital, core banking platform a more compelling alternative.

  • Competition         

Banks are being challenged by Fintech disruptors which are breaking out in their masses. By 2020 Fintech will drive the new business model and according to CB Insights global investments in Fintech are at a record $5.4 billion – and that’s just for Q1 of this year.

An advantage Fintechs have over banks is they don’t have to compete across all business functions, they can pick and choose where they want to stand in terms of services they want to run. It’s a clear sign that those banks who are being complacent in the face of fintech need to reassess their business models.

The competition between banks and rising digital companies is set to be an interesting one. But one thing’s for sure, traditional banks need to be respectful of digital disruptors.

  • Customer

Arguably the biggest factor behind the new change in banking, is the change in customer behaviour. Not only has technology transformed the way financial services are produced, it’s also transformed what customers expect, and in essence the power is shifting towards the consumer.

Digital only banks have now arrived, PWC in 2017 found that 46% of consumers only use digital channels and given the 27% figure four years before that, it’s an amazing rise. This seems to be the case in the UK with more than 22 million customers in Britain having downloaded banking apps. People expect to be able to communicate with their bank through various avenues. Webchats and video banking are growing in popularity as the assumption of Brits being tentative in talking openly about their money continues to fade away.

Banks are feeling the pressure to offer a great customer experience, since digitally led challenger banks came on to the scene. Services now need to be flexible and align with our day to day lives. Banking services are now expected to be personalised, easy and instantaneous with the overall experience being pleasant and seamless.

Financial services are changing and for the better. Consumer needs and expectations are going to be matched as the physical and digital world get closer together – and the new reality of banking is all being shaped by fintech.

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