The banking marketplace is changing at a rapid pace, presenting traditional banks with an unprecedented opportunity to transform. Kuldip Chiheru, Digital Banking Platforms expert at Atos  – trusted digital partner to a number of the world’s leading banks and insurers – explains the ways that legacy banks can thrive in this new environment.

The challenge for legacy

It is no secret that technological developments have dramatically changed the banking landscape, bringing new opportunities and challenges for established providers over the past two decades, a change which has only accelerated in the wake of COVID-19.

In storming the market, neo banks and challenger banks continue to attract customers at pace with over 39 million customers worldwide in the last ten years. Offering a competitive quality of customer experience, they have changed consumers’ expectations: a recent survey found that 81% of consumers said easy access and flexible banking would make them want to switch from their traditional bank to a new-age financial provider.

In addition, these new banks operate on light cost income ratios, rendering the operating models of legacy institutions almost completely unsustainable. They are also typically better equipped to deal with the cyber-attacks that target the industry, something financial services companies are 300 times more likely to face than any other company. In the face of such fierce competition, the traditional banking industry faces a projected $2 trillion revenue loss by 2025.

How traditional banks can thrive

The challenge for legacy banks then, is not only to retain their heritage, presence, and inherent trustworthiness, but to meet new customer expectations using the most efficient operating models.

There is no doubt that banks were one of the first industries to digitise their services – as early as 1994, the first US bank offered internet banking to all of its customers.

But the pace of change is only increasing, and a hybrid of digital and manual components will increasingly expose banks to processing delays, communications flaws and dissatisfied customers, especially when compared to fully digital competitors. To retain their competitive edge in the coming years and decades, banks must undergo a deep business digital transformation, retaining no elements of the legacy structure.

One example of this this digital approach is Atos’ hyper agile, software defined banking business model. By ‘hyper agile’, we mean a model which allows the fastest possible adoption of new partners and services into the bank, as well as the most efficient, leanest operating costs. This model differs from traditional banks in three core ways, each of which opens untold possibilities for legacy banks.

Best of breed banking software

‘Best of breed’ banking involves bringing in partners who are best in their class to provide each element of the banking structure. This way, each part of the bank is created by true specialists in their field. For example, a leading software provider will create the software structure, while a leader in identity verification solutions will provide the customer security element. In a ‘hub and spoke’ structure, an open integration platform connects the different elements of the bank.

An open collaboration eco-system

Using a best of breed software approach gives rise to a digital ‘ecosystem’ of tools and partners providing the highest quality services. It requires open collaboration banking ecosystem – the use of open source software code and open APIs which can be easily accessed and changed. Open source software means developers can build applications and services around the bank, so new services can be quickly adopted, enhancing the bank’s offer. For example, banks will increasingly be able to build new products and services using data across partners and institutions. Open collaboration also gives customers greater benefits from sharing their banking data, something they increasingly demand.

Application Programming Interfaces

A key component of best-of-breed software and open banking is the use of APIs, Application Programming Interfaces. In an ecosystem of applications which all need to exchange data, APIs are the interface which facilitate the exchanges. These ‘middlemen’ of data exchange allow the hundreds of applications in a single open bank to communicate seamlessly.

A bank transformation in action: Bank Misr

What will these digital first banks look like in practice? Banque Misr, one of the largest banks in Egypt, is planning to become the country’s first digital bank, and is a good case in point.

Partnering with Atos and embracing a software defined infrastructure, it will build a new front to back digital bank. The bank, to be named ‘MDI Digital Bank’, will be a leading example of a cutting-edge neo bank.

Using an open banking ecosystem means that partners and external services will be able to enrich the products available to customers, who will receive a personalised and frictionless digital experience across all channels, be that in person or virtually. For example, MDI will harness advanced AI using big data management to give customers practical insights and benefits tailored to their financial needs and lifestyle.

Other digital services will support MDI in its marketing and outreach. Solutions such as social customer relationship management will foster a richer engagement with customers and prospects.

While the banking industry’s digital journey is well underway, total transformation is an imperative if they are to survive the impact of fintech and neo banks.

But moving to a fully digital model is not just a matter of surviving – it is a matter of thriving as market leading institutions. Digital first enables rapid innovation, giving banks long term sustainability in the face of ever-changing markets and customer expectations. As wholly open banking ecosystems, they are ready to embrace whatever the future of financial services may bring. Fully digital banks are brimming with potential and poised for future success.