6 Change Drivers for Traditional Banks
The Financial Services industry is in the midst of widespread disruption as they experience both phenomenal growth and unprecedented competition. What key change drivers are pushing this disruption? Will traditional financial service providers be able to keep up, or will disruptive competitors take the lead?
Driver #1: APAC & MENA Coming In Strong
In the past, North America and Europe may have been considered the homeland of financial institutions. However, as globalization increases and smartphones revolutionize access to the internet, this focus is shifting. Strengthening capabilities in the Asia Pacific (APAC) and Middle East and North Africa (MENA) regions bring new needs and requirements to the banking industry. Digital-only banks and mobile apps in the hands of consumers around the world are necessitating a shift in focus away from traditional banks.
Driver #2: Digital-only Challenger Banks Emerging
So what’s a challenger bank? Essentially they’re startup digital banks competing against incumbent banks. They don’t have physical branches (or the people needed to staff them), and critically, these challenger banks have no technical debt and are ready to run. Consumers like them because they typically offer an excellent mobile experience, low fees, and provide access to underserved areas.
Driver #3: Mobile and Digital Transformation
Competition from leaner and more agile players in the banking system has only just begun, and organisations built on bricks and mortar are already finding themselves competing with increasingly capable online providers unencumbered by technical debt, forcing them to adopt new operating models to ensure that they stay competitive. The introduction of mobile devices and the many apps that run on them has changed both consumer expectations and how they manage cash flow, access account information, and decide on loans and investments. Banks that can’t handle these expectations can expect trouble ahead.
Driver #4: Dealing with the Legacy of Technical Debt
Partly due to natural organic growth and also through acquisitions over the lifetime of an organisation, older financial services organizations have added more complexity and technical debt to the mix in their technology stack. While their core banking applications are solid and reliable, they don’t transfer well to the cloud — and don’t handle modern consumer expectations gracefully. How can they address this legacy?
Driver #5: Trusted Systems & Risk Aversion
It’s not surprising that cloud adoption in financial services has historically been slower and less widespread than in other industries. Their legacy systems have been stable and reliable for decades. They’ve stood the test of time, even as new technology has been introduced, starting with ATMs in the late 1960s all the way through web and mobile apps. The internet has taken over everything from the dishwasher to the telephone to the lightbulb. These pervasive changes, driven by the internet and mobile phones, is changing how consumers interact with financial institutions as well as what they expect out of them. So while the technology has worked through many changes in the past — and remained stable — they may need to revisit how and why the risk of rebuilding it may be an essential next step.
Driver 6: Open Banking
New regulations for open banking have stood the traditional banking industry on its head. Now that the European Parliament has adopted the revised Payment Services Directive (PSD2), there’s a legal foundation to develop better integrated internal markets for electronic payments within the European Union (EU). This regulation necessitates open APIs that enable third-party developers to build applications and services around financial institutions. Traditional banks must adjust their business approach and legacy apps to allow this, and it’s no small task.
In a landscape being revolutionised and revitalised by digital transformation and increased competition, traditional banks are increasingly aware that they must overcome these naturally risk-averse attitudes to change and instead embrace new technologies. Selecting the right strategic platforms, tools, and partners while remaining open and ready to adapt to change will determine who succeeds — and who doesn’t.