Welcome to the third and final instalment of my Bank of Tomorrow blogs. You can view the first two here. Without mentioning the C-Word, it goes without saying that over the last few weeks the world has changed beyond recognition. The consequences are far-reaching and continue to unfold but, in many ways, this very unfortunate situation has exposed the urgent need for an appropriate and sustainable Bank of Tomorrow designed to support the needs of the customer, both now and in the future.

This is unchartered territory and it is impossible to calculate the true cost this situation is having on our combined communities. Those privileged to be able to work productively from home have a financial and emotional lifeline in otherwise very stormy seas. For the young, elderly, vulnerable and those who have been furloughed or have already lost their jobs, it is a very different story. This is a tragedy of truly epic proportions which has brought the dependency on our mobile devices for banking services, grocery shopping, medical triage, entertainment services and basic human interaction into very sharp focus indeed.

Traditional channels are obsolete

In a time when traditional channels and business operations have become pretty much obsolete, the ability to provide seamless access to a wide variety of digital channels, products and services is an absolute necessity. Hindsight is a wonderful thing, particularly when far too many firms chose to ignore ‘expert advice’ and continued to focus time and money on resource-hungry operational needs at the expense of investing in an agile, digital-first and robust business continuity strategy. When set against the backdrop of today’s environment, the relationship between innovation and rapid adoption alongside the inability to effectively respond to cataclysmic situations has never been more apparent. Alarmingly, a recent PWC 2020 retail banking report recorded that over 80% of senior executives felt they were unprepared for the future. This makes for scary reading, especially at a time when the need for an agile, resilient banking system has never been so crucial to the very survival of the global economy.

Much has been written about the Bank of Tomorrow over the last few years; evangelising how technology will completely transform the customer experience and reduce the cost of service. And today, it is widely believed that by adopting digitally-driven technologies, such as the cloud, open banking, Banking as a Platform (BaaP), Artificial Intelligence (AI) and High Performance Computing (HPC) etc., firms will be able to save vast amounts of money and at the same time create a significant competitive advantage. But how much of a difference has all this really delivered? Clearly many of the challenges most financial institutions are facing today can still be laid at the door of ageing infrastructures, legacy operating systems and the corresponding complexities these have bred across many organisations.

High cost base

The nub of the problem for many of the established banks is the high cost upon which they manufacture the products and services they provide to their customers versus the income they derive. In the case of established banks, this cost to income ratio (CIR) is at 40% or more, compared to the challengers who, until very recently, were operating with a CIR in the region of 25%. This is further exacerbated exponentially by increased customer expectations and highly agile competitors providing access to a broader range of very attractively priced, self-serve offerings. On a more positive note, we are seeing a growing pivot away from ‘on-premise’ software applications to more software as a service (SaaS) and bank as a service (BaaS) solutions. While this is a strong indication that things are changing, adoption is slow as many firms still struggle to appreciate the speed and cost-effectiveness these can deliver.

It’s all about models

I genuinely believe in the transformative effects that adopting a model-based approach to banking will deliver. Steve Cohen and Matthew W. Granada’s Wall Street Journal, ‘Models Will Run the World’ article published back in 2018, hit the nail on the head when they talked about models being the true source of power. They argued that once created, the model learns invaluable lessons from its success and failures at speed and with a sophistication no human can really match. It is already proven that the capabilities of a model-driven business go far beyond those of the traditionally data-driven firms. Look no further than at the incredible successes achieved by the early adopters, such as Netflix, Spotify etc., who simply accelerated away from those who remained software-entrenched. By intelligently applying models to drive key decisions, firms can create highly lucrative new revenue streams and enable significant cost reductions, at a pace never before possible. In this highly competitive and volatile environment, on-demand and deep knowledge of the customer is the absolute jewel in the crown. Continuing the age-old dependency on legions of technology and people means that most firms will never be able to exploit this power.

The A to Z of banking

Despite all the perceived difficulties caused by remote working, it is possible to make fundamental changes to existing infrastructures which will transform the business and provide improved consistency across all customer service capabilities and channels. In our experience, the adoption of what we call the ‘A to Z’ approach to banking depends on an open-minded and fully engaged team who have bought into the exciting opportunities the new model-driven approach will create. This in turn will provide the ability to successfully coordinate all the essential underlying components, together with the many new business use cases set against a clearly defined target architecture which must not, under any circumstances, be compromised by vested interests.

 ‘Til we meet again

As I come to the end of this Bank of Tomorrow blog series, the unfortunate ‘new’ reality is that no one is immune to the potentially devastating effects of this global pandemic. As citizens of a now very different world, our obligation to take care of our planet and of each other has never been greater. We also have an unexpected and shared responsibility to recreate a fully functioning global economy which is designed for the good of all. My overriding hope is that we will embrace the model-driven approach which will enable us to accelerate the delivery of our Bank of Tomorrow, that will support us all on the long road to recovery and renewed stability. Everything is possible and it’s up to us now. ‘Til we can meet again in person, we are here ready and able to help.