The UK banking sector is ripe for digital transformation. Not only will digital solutions help to mitigate some of the biggest challenges faced by the industry, but they also present enormous opportunities and new paths to profitability. There is everything to play for.
The last financial crash was over ten years ago, yet the subsequent low interest rates show no signs of shifting. Even before recent rate cuts were made to mitigate the impact of Covid-19, policy makers were forecasting that low interest rates are here to stay for another 20 years1. In other words, lower margins are the new normal. Automated solutions that can streamline operations and free up people to focus on value-adding activities can relieve this pressure.
In addition, potentially disruptive challengers in the shape of fintechs or ‘neobanks’ have been ramping up operations across the UK, which is a leading target market. This has led some traditional banks to fight back with their own app-only digital banking offers, aimed primarily at younger consumers, such as the short-lived digital bank Bó from RBS2.
But digital transformation is about more than mitigating such challenges. It also unlocks major opportunities. Digital technologies have already overhauled operations in other industries and banking could benefit from a similar rethink.
For example, digital solutions are enabling a step change in efficiency in many sectors, thanks to the arrival of a wide variety of automated systems, such as chatbots, data analytics and machine learning algorithms that can automate routine activities and give people the head space to focus on adding value.
At the same time, using data to increase visibility across the entire organisation - from operations and back office functions to customer relations - also enables companies to make better business decisions.
On top of these general benefits, there are also factors specific to the banking sector that make digital solutions a priority.
For instance, there is a lot of work already being carried out to get everyone more connected and make it easier and more secure to carry out transactions and keep track of assets. Mastercard is the latest high-profile financial organisation to join the Marco Polo trade finance network, along with BNP, ING and Microsoft. Meanwhile, Dutch Bank ABN AMRO is using blockchain to communicate with trade investors.
The technology legacy of the hype that initially surrounded cryptocurrencies, is also continuing to make waves, enabled by blockchain and similar distributed ledger technologies (DLTs), which can ensure the necessary levels of security and traceability to support clients and maintain regulatory compliance.
Furthermore, regulators are actively looking to stimulate digital innovation, with the EU planning to make more publicly funded data available to technologies such as blockchain so they can support key industries such as banking.
Unlocking the power of data
Data is the key asset in any digital transformation, but many conventional data solutions run the risk of increasing organisational complexity, which could be counterproductive. They typically need centralised data teams to understand the technology, manage the platforms and build the data applications. What’s more, many organisations hold data in rigid silos, making it difficult to share.
Data Lakes seek to solve the silo issue by layering an overarching platform on top that brings diverse data sets together. However, these are still managed by a central team.
NTT DATA instead recommend passing control of data back to the users in different business areas, providing them with a collaborative environment in which to build and share their own data applications autonomously and minimising their dependence on centralised teams. This data paradigm, called Data Mesh, promotes the rapid development of solutions that successfully target specific business headaches, leading to greater buy-in from personnel, as well as rapid returns.
This approach calls for a modular, scalable architecture and a strong DevOps framework to support distributed teams as they develop and operate their data products.
Steps for success
NTT DATA’s adaptable approach to big data solutions can typically be broken down into three steps. First, lay the foundation and establish an IT and business architecture, complete with a roadmap for evolution. Next, focus on affordable solutions to capture, store and use data. Finally, ensure that any solutions support day-to-day operations in measurable ways, by delivering greater flexibility, speed, compliance and/or real-time analysis, for example.
Only by establishing agile, design-led development processes can traditional banks hope to lead the way in innovation. In this way they can compete successfully with fintechs and maintain their leadership positions.
- https://www.marketingweek.com/launch-rbs-mobile-banking-brand-bo/ https://sifted.eu/articles/rbs-bo-close-decline/