Big, traditional banks are not perceived to be at the forefront of innovation, but they get there eventually. Incremental change, however, is unlikely to be a winning strategy in the uncertain new playing field created by Covid-19. It is already clear that traditional lenders must take urgent strides towards digitalisation to build resilience in a post-pandemic world. For big institutions with cumbersome legacy systems, embracing platform banking through Open Banking provides the fastest route for banks digitalise and meet consumers’ shifting needs.

Customers’ desire for financial simplicity

Recent quarterly earnings indicate just how much better banks have weathered the pandemic than they did the 2008 financial crisis. This time the recession started the other way, hitting the real economy before the banking sector. However, banks cannot afford to be lulled into a false sense of security. Market dynamics and consumer behaviour have fundamentally shifted and these institutions’ old ways of doing things are under threat. Cloud-native challenger banks are already primed to thrive in this new world, where digital financial services are in demand, and traditional lenders are now having to play catch-up.

Beyond demand for a far more seamless and digital banking experience, there is also an increasing desire among consumers for financial simplicity. Recent research we did analysing UK consumers attuites to savings and different banking offers found that over half (56%) of Britons say that they would like to have as few financial services providers as possible.

This could be a double-edge consequence of the popularity of digital challenger banks in recent years, leading to a proliferation of bank accounts among Brits. Indeed, the average number of bank accounts per person in the UK has risen from 2.5 in 2014 - before the rise of digital banks - to 2.8 today, with the country now possessing a total of 156 million bank accounts¾the highest anywhere in Europe.

Paving the way for platform banking

Becoming platforms provides banks with a fast-track route to digitalisation, while simultaneously meeting consumers’ desire for financial simplicity. This makes banks marketplaces that do not just sell customers their own products, but those of third-party banks and financial institutions as well. Consumers get the benefit of greater choice while sticking with the same financial provider. For banks, it provides a vehicle to rapidly scale their digital operations without being held back by their legacy systems, while safeguarding against the threat of challenger banks by cementing their position as a hub for their customers’ finances.

This idea is popular. According to our research, more than half (52%) of UK consumers said that they liked the idea of their primary bank or financial services provider acting as a marketplace. And this model is likely to only gain further traction, appealing much more to younger consumers, with 63% of 18-34-year-olds finding it appealing, compared to 41% of 55+year-olds.

While Open Banking and platform banking has mostly been adopted so far by the challenger banks, underlying consumer sentiment suggests that traditional lenders may be best placed to win through in the end. Four in five (79%) UK consumers say they would prefer to consolidate all their financial services with a traditional bank, and very few were comfortable with a mobile or challenger bank taking on this role (13%). Respondents were even more reticent with the idea of a Big Tech company like Apple or Google (4%) taking on all their financial services, despite these companies launching money services in recent years.

It is astounding to think that seven out of ten of the most valuable companies in the world are platforms, like Facebook, Amazon and Google. Traditional banks now must take a far greater leap into the internet age, and they should head valuable lessons from these companies. Not only does the platformification of banking offer innovation at pace, but it also enables incumbent banks to give their customers the simplicity they desire and fend off competition from challengers.