Across the globe, digital transformation is impacting almost every sector – and the banking industry is certainly no exception.
Fintechs and start-ups are driving much of this innovation. Digital challenger banks, such as Monzo and Starling, have disrupted the market by launching consumer products that focus primarily on an intuitive user experience – with small and medium-sized businesses starting to demand similarly engaging banking services.
And although these new entrants have a relatively small market share, they do possess certain advantages over incumbent banks. They’re often not measured by profit and loss, and can afford to lose money in the short term as they’re backed by multi-year, mid-term investment plans.
Additionally, being much smaller in size, they don’t have to manage huge operations with entrenched legacy systems that have been in place for 20 to 30 years. This allows them to be much more agile – adapting as consumer expectations change and evolve. Nevertheless, the journey of these Neobanks from providing simple banking products (i.e. bank accounts or debit cards) to a much more complex offering (i.e. saving products, mortgages or dynamic pension plans) will require more than a user-friendly App. On that evolution, these new players will confront the core asset of established banks: sophisticated backoffice processes and systems to manage their financial exposure and capital.
This is certainly a significant challenge for the industry to conquer. But, unfortunately for banks, increased competition from fintechs is not the only difficulty they’re currently facing.
High regulation and low interest rates
After the 2008 financial crisis, it was undeniable that regulatory changes were desperately needed.
In the following decade, systemic risk regulations and enhanced consumer financial protection have led to a period of relative calm, with the industry gaining back stability and credibility.
But the difficulty for banks is they now need the capacity to store – and, crucially, understand – masses of data in order to stay compliant. This is proving an extremely tough obstacle to overcome, especially given the industry is largely using legacy technology and processes that are no longer fit for purpose.
Further exacerbating this problem is continued low interest rates. Indeed, one of the Bank of England’s leading policy makers has forecast the era of low interest rates will last for another 20 years.
This long term downward trend in global interest rates means smaller profit margins for banks, leading to significantly less money available to invest in transformation programmes.
So, in order to successfully deliver digital transformation, banks need to start thinking – and operating – differently.
Digital – the new normal
Ask any CIO or CDO in the sector and they’ll all give you the same answer: digital is the new normal. It’s no longer a ‘nice to have’ – it’s a ‘must-have.’
Digitising processes front to back in a cost-effective manner – through implementing increased automation, digital entities, chatbots and data analytics to name but a few – is essential if the sector is to thrive moving forward.
NTT DATA and everis are able to combine data-driven strategies and technology architectures with first-hand knowledge of the unique challenges the banking industry faces.
Together, we’re able to help bring together the disparate, siloed systems of the past into the consolidated, efficient data-lakes of the future – enabling banks to stay compliant by properly assessing individual clients and producing thorough, accurate reporting. We also provide the framework for agile, design-led processes that can compete with fintechs.
Only by fully embracing digital transformation can banks stay at the forefront of innovation – and find new paths to profitability.