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Banking and payments are no longer limited to banks, and it’s a transformation that’s only just begun. People want banking integrated into their daily lives and payment services that eliminate friction. In this blog we take a look at what banks need to do to adapt.
Almost all bank systems and processes are firmly rooted in the past, reflections of an analog age when computer systems mimicked manual processes and physical artifacts. The best roadmaps to digitalization won’t perpetuate this, they’ll plot an all-new journey.
Digital technologies and open banking are changing banking forever. People need banking, but they don’t need banks per se. They’re showing indifference towards banks by avoiding them – over 70% of bank interactions are now digital.* When people visit a bank it’s usually to receive specialist advice, or perhaps access safe deposit boxes, rather than to complete transactions.
Payments, like banking, is a service business. Customers want frictionless payments delivered in context. Amazon excels at this and is gaining market share accordingly. Amazon Pay has seen tremendous growth in active merchants and revenue since 2017, and their markets globally showcase double-digit growth. Amazon has travelled light years since its origins as an online bookstore.
Open Banking, Instant Payments and Mobile
Open banking initiatives around the world seek to align financial services with the real world by putting bank customers in control of their own data. Technically, this is enabled by application program interfaces (APIs) which empower customers to combine data from accounts (even at different banks) and integrate payments into retails apps. This simplifies shopping, but that’s just the tip of an iceberg.
Open banking, APIs and real-time payments are driving impactful innovation throughout the banking industry. New market entrants offer a tech-first approach to banking that’s continually raising the bar of customer expectations. A “storm of creative destruction” is raging throughout the global industry and is redefining what it means to be a bank.
For incumbent banks, the implications of this turmoil are plain: Digitalize or die. This may sound blunt, but it’s what banks need to do to “future-proof” against an uncertain future. Too many banks are hampered by their heritage. Branch networks that once were the pride of high street have become quiet and costly; technologies that once offered scale and efficiency have become unwieldy and expensive to maintain. Worst of all, the ”stovepipe” technology infrastructure encourages a conservative culture which throttles innovation and improvement. What is needed is revolutionary thinking. The current state of the banking industry shows that a proud heritage does not ensure a prosperous future.
Thinking Outside the Branch
Banks globally need to modernize, and the vast majority indicate they intend to do so. Transformation may seem like a Sisyphean challenge from Greek mythology – rolling a boulder uphill, the harder you push the stronger the countervailing forces become, and the boulder rolls back down the hill. This mythology highlights a fundamental truth: Banks don’t need to push harder, they need to do things differently and do different things.
So where should they start?
Faced with an uncertain future banks need to adapt by modernizing a triad of investments – core, channels and payments. These terms are in themselves “bankspeak” that are of no obvious relevance to customers, but they’re essential underpinnings for sustained business success. Any bank platform that does not revolve around the customer will become irrelevant and fail. But, with modern technologies – especially APIs – these three stalwarts will converge as banks shift focus and put the customer front and center.
A Blueprint for an Uncertain Future
Now let’s consider how the three key pillars can evolve to create a bank that is customer-centric, future-proof, and infinitely flexible.
One thing is certain in these uncertain times: The time is now for banks to transform.
* Statistics from McKinsey 2019
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Victor Irechukwu Head, Engineering at OnePipe Services Limited
29 November
Nkahiseng Ralepeli VP of Product: Digital Assets at Absa Bank, CIB.
Valeriya Kushchuk Digital Marketing Manager at Narvi Payments
28 November
Alex Kreger Founder & CEO at UXDA
27 November
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