Where previously regulation had been the driver of spending decisions, the need to innovate is rapidly becoming as important, if not more so. Banks with outdated legacy systems and products must act with agility and find new ways to stay ahead of the pack.
The financial services market is set to become saturated by offerings from new entrants and major retail brands which will appeal to consumers far more than the financial institutions which hold their money. Meanwhile, new research by Gartner suggests 25%
of top global banks will have launched a banking app store by 2016. How will the established market respond and will this really be enough to hold off competition from a host of new challengers?
As regulation and the availability of cheap technology steadily eat into banks’ competitive advantages over challengers and new entrants, a
new Deloitte report suggests retail banks are facing an ‘adapt or die’ moment. Banks will need to address their cost base and shift their strategies from cyclically-driven to a longer-term approach fit for the digital age. Otherwise their position as a
trusted part of the financial ecosystem could be under threat.
In this new competitive landscape, banking’s willingness to engage in ‘coopertition’ with the booming fintech sector could be key. Global fintech investment rose from $928m in 2008 to $2.97bn in 2013, and the big banks are increasingly using start-ups as
a testing ground for new technology before they are scaled up. Others, of course, will opt to acquire new players or roll out partnerships with new players to fill gaps in their existing offering. However, the strategies of the past won’t cut it in the digital
age: there will always be another disruptor.
Coupled with this, a new generation of users demand a new customer experience. The banking ‘client 3.0’ is a totally informed, digital-native who places greater value in word of mouth recommendations from peers than information from regulated advisors. Consumers
have also come to expect tailored, interactive experiences from their direct interactions with retailers, and expect financial services providers to be similarly adept at anticipating their needs. Banks are therefore faced with the challenge of investing more
heavily in innovation, while risking potential criticism for not maintaining spend on IT and security.
Meanwhile, technology partnerships and working more closely with the fintech sector will be an increasingly valuable way for banks to innovate and keep potential competitors on-side. This will also help to alleviate the burden of running a back office and
concentrate on improving the all-important customer experience. Those who strike the right balance will lay down the blueprint for a new era in banking.