This is an excerpt from Finextra’s report, 'The Future of Digital Banking in the UK 2022'.  

Beyond the recent Covid-19 pandemic, the world has found itself having to function in a context of rife with unpredictability, with climate change and global geopolitical events marking just the tip of the iceberg. On top of these pressures, the financial services industry also has to manage a highly digital customer base and an increasingly interconnected global money transfer system.

While the recent availability of data is unprecedented, allowing for customised and often instant delivery of financial services crafted specifically with the end-user in mind, it brings risk with it.

The potential for widespread outages, data breaches, and greater exposure to nefarious actors, means that financial institutions must reassess and evolve their infrastructure to mitigate such threats. Digitising to the core with support from agile players, such as fintechs, can bolster this agility.

The Lloyds spokesperson observes that as customer, tech and competitive trends are evolving faster than ever before, banks need to be forward looking: “Horizon scanning and building our understanding in emergent spaces through experimentation is pivotal to success.” Also, the banks is focused on helping to shape the future direction of the industry by applying its areas of expertise to new opportunities and challenges.

“Recognising the innovative activities taking place across a range of organisations and industries, we are increasingly building into our decisionmaking whether the right response is to build something internally or partner with third parties, such as fintechs. By collaborating in this way, we can better navigate the changing and uncertain environment; supporting our effort to deliver the best products and services for our customers.”

A strong example of where Lloyds have achieved this is through their partnership with Minna. Through Minna’s capability, Lloyds was able to launch the first market subscription management service within their app. “Minna built and we integrated, allowing customers to block and cancel recurring card payments, so far helping 1.2 million customers to manage their subscriptions.”

Alexander Richards, head of corporate strategy, OakNorth explains that listening to what customers and data are telling you is key to managing unstable periods.

“In times of unpredictability, or when exploring new offerings, people often look first to what they have done before - either personally, institutionally, or industry-wide. This creates a historical bias, which is hard to overcome yet can be pushed through with the help of aspirational, data-centric fintech players, as well as investing in understanding what your customers are experiencing.”

Richards adds that there must be a strong partnership here, as both sides must learn from each other and the data and from customer perspectives they bring to the table. It is at this intersection where true digitisation to the core can be achieved.

first direct’s Mel Meshkat observes that when dealing with the unpredictable, being wed to specific ideas can stop you listening to customers or tackling challenges with agility. “Focusing on creating positive behaviour change is crucial to this.”

She furthers that while effective partners can help with this evolution, there is no avoiding the reality that digitising to the core has been challenging for the banks which pre-date the internet. Therefore, “embedding the right foundations and enablers is necessary to generate true agility and really unleash the power of fintech partnerships.”

How to leverage infrastructure to get more out of partnerships

Ensuring that the correct infrastructure is being leveraged is a key element of building resilience through stronger, more productive partnerships.

Meshkat argues that agility and adaptability are core focuses going forward, and that in a world of connectivity, it is essential to use the right technology with the right infrastructure to support solutions and give the best experience to customers.

“Scalability, speed, accessibility, inclusivity are all important for us. In order to enrich customer data we are leveraging solutions built on cloud that allow faster processing and speed to market. The cloud is also allowing us greater flexibility to integrate at pace with our partners and vendors.”

For Lloyds, being fit for purpose means that infrastructure must enable the bank to respond more quickly to the needs of its customers.

Infrastructure that is highly secure and can flex with the changing global business environment and regulatory changes is essential, as is the ability “to quickly spin up new environments within 1-2 days to test and experiment new products, features and concepts.”

The spokesperson from Lloyds sees the public cloud playing a fundamental role in providing this flexible infrastructure in the most cost-effective way: “Cloud infrastructure will provide resilience by being spread around zones and regions and also enables portability of services and applications across Cloud Service Providers. “

Richards notes that while most banks are well along the path to moving data management, process management, and some analytics to cloud-based systems, a surprising number are still hesitant to make the jump to a full cloud-based core banking system.

“This not only hamstrings banks in the near term – given the expense and time of managing non-cloud core banking systems, and the complexity of integrating cloud-based applications with them – but also materially inhibits agility in the long term. Moving everything, including the core, to the cloud can be a significant competitive advantage,” Richards argues.