Long reads

What to expect across core banking this year: Embracing fintech, more APIs and enabling DIY Finance

Matthijs Aler

Matthijs Aler

CEO , OHPEN

While financial institutions were already boosting their focus on technology pre-pandemic, the Covid-19 outbreak hit the fast-forward button on this digitisation progress with force. We’ve all seen how banks and financial institutions have stepped it up when it comes to process handling amidst the crisis, helping fill the void created by lengthy queues on telephone helplines. But there is much more on the horizon for financial institutions; opening a bank account remotely merely scratches the surface of what banks can offer in the way of digital services. Here’s what banks should prioritise in 2021:

Getting braver with fintech

Ever since Barclays launched an ATM in 1967, fintech has taken the world by storm and made significant changes to how consumers manage their finances and the way banks conduct business. The adoption of tech has many benefits for financial services, from gaining a wider clientele to opening the market to increased competition. This naturally poses a challenge, too – traditional banks risk losing their monopoly and must compete with innovative fintech start-ups and BigTech brands, making it harder to protect market share. Incumbents have felt this shift and have tried to adapt how they operate, most often by exploring new technologies and incorporating them into existing legacy systems.

But they simply have not gone far enough.

While fintechs have managed to recreate a “human touch” through customer- centric digital communications, traditional banks often struggle to match it. What they actually do is create a 'fintech feeling', but remain hesitant from a compliance and regulatory perspective in truly adopting the latest tech. A common fear amongst incumbents is that, by adopting the latest technology to attract new consumers, they could lose control of important things like security, data protection, risk management and compliance. They’d rather stay in the slow lane, sticking to legacy software and the perceived ‘control’ over risks, instead of taking the plunge to modernise their systems and boost overall CX.

Of course, some of these concerns hold some form of merit. However, this year, I predict incumbents will aim to find a better balance between innovation and conservatism in order to remain profitable and competitive in the long-term. There are ways in which banks can outpace fintechs without taking on unnecessary risk:  

  • Start small. Through individual assessment of each department or product, and by incorporating new tech into legacy software, incumbents can achieve steady but impactful change to meet customer demand in the long term  
  • Practice makes perfect. Run Proof of Concepts before jumping fully into a project. Run a small-scale test first, then move into the production phase when the technology or solution has been proven to work.
  • Partner up. Incumbents have to embrace working with trusted tech vendors and innovative start-ups to exchange learnings when it comes to technology adoption 
  • Play to your strengths and sheer size. Traditional banks led the market when it comes to managing cashflows. This is the optimal time to play this to their advantage and invest in the future. They should use the existing distribution power that is embedded into their decade’s long relationships with loyal clients.   

Making API strategy a priority

Leading voices across the fintech landscape have long claimed that to become market leaders, financial institutions must keep their heads in the cloud and feet on the gas pedal. A quick Google news search on ‘Cloud Banking’ alone delivers a whopping 359,000,000 results. But an under-discussed element of securing modern banking success is the quality and implementation of Application Programme Interfaces (APIs).  

After all, cloud is simply on demand access to computer resources – it’s the APIs that form the magic glue within it. They unleash the flow of information (such as customer data) between applications, helping them ‘talk’ to each other and provide analysis which, ultimately, helps shape new products. An API-first strategy therefore has the potential to unlock a win-win scenario for everyone: 

  • For customers, it means more personalised products, helping better manage finances
  • For banks, it means digitally boosting regulation-compliant products and services in weeks, not years. It means configuring products flexibly and more cheaply than via an IT system reboot
  • They’re good news for partners and third-party developers, too, enabling them to seamlessly plug into banks’ systems.  

But despite the enormous benefits, ‘API’ remains an anacronym for an isolated ‘IT matter’ at some incumbent institutions, rather than a key component of the overall digital strategy. Put off by the fear of an expensive and disastrous TSB-like tech blackout, introducing an API-led approach into an already jam-packed change calendar seems risky for many banks. This often leads to APIs being disregarded – or worse, tentatively implemented, blocking APIs’ full potential for enabling innovation.  

In order to move towards an API-led ecosystem, built on robust integrations between financial institutions and businesses across a range of sectors, in-house developers as well as external providers and fintechs must become API ambassadors from 2021 onwards, gradually enabling APIs to form a central part of every financial institutions’ long-term strategy. From better documenting APIs’ impact in-house, to sharing best practice across the developer community and moving to moderm BPM tooling for workflow management – it must be seen that, to satisfy customer needs and offer best-in-class banking, an API-first strategy is vital.

Saying hello to DIY finance

Lastly, banks in 2021 must reflect – and even outpace – customers’ potential to become their own money managers. The days of trying to tally up the cost of a particular house, before entering into arduous mortgage negotiations with an advisor, for example, are set to evaporate.

Instead, financial institutions should prioritise using the appraisal mechanism, plugging into an expanded range of trusted data sources, including things like credit history information, fiscal data, community-based valuations as well as Google Maps indicators, and pair it with the newest machine learning technology. They should leverage document management systems which will enable customers to upload key documents and PDFs to the application straight from their smartphones, leaving RPA behind the scenes to extract the necessary information and fill in the gaps.

With customer permission, this will enable banks to build accurate consumer profiles, helping buyers find out – in milliseconds – how much they can borrow. The same applies to small businesses. With over 50% of SME lending applications still requiring manual revision, entrepreneurs will also follow this same premise to instantaneously find out how much financing is available to them too. 2021 will see smarter straight-through-processing (STP), bidding good riddance to the intermediaries and manual processes that have complicated banking for consumers and businesses alike for so long.

We’re already starting to see it in the UK with the closure of bank branches, but 2021 will be the awakening of what is truly possible for digital financial services. Banks and other financial institutions have a golden opportunity to take a customer-first digital approach this year – but they have to be in it to win it. From more openness to fintech, boosting APIs and enabling DIY finance, institutions must fully embrace every crucial weapon in their digital arsenal throughout 2021 and beyond. 

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