Long reads

How to be an adaptive bank

Andy Schmidt

Andy Schmidt

VP & Global Industry Lead - Banking, CGI

The traditional banking model is undergoing profound change. Boundaries and rules are blurring among existing financial services firms and non-traditional providers. There are several reasons for this, namely that customer expectations are drastically different to what they were five years ago, let alone 10 years ago.

Automation and artificial intelligence (AI) are also enabling human decisions, and service and delivery are moving from physical operations prior to almost exclusively virtual. While there are major shifts in the marketplace, at the same time, there is the issue of data. While data is the new currency, when leveraging AI, organisations need to know which questions they want to answer with that data in order to get the desired results – a tall order for many institutions.

For example, when it comes to financial crime, at this point, criminals are mathematicians and data scientists, not just your traditional hacker, so they are able to cobble pieces of information together – to see the larger bank and client picture – and will try to disrupt operations accordingly. Everything is moving towards instantaneous speed, and payments will remain the final point of the transaction.

However, regulators are still playing catch up and are typically three to five years behind the market, especially for something that’s emerging because implications need to be understood before legislation can be put in place. An adaptive approach gives financial institutions the ability and advantage of keeping pace with all these changes.

What is adaptive banking?

An adaptive approach is a customer-centric approach, an agile approach, to banking, that uses data on a continuous basis. The goal of adaptive banking is to better understand customer expectations, customer behaviours, and customer activities to tailor banking services through incremental changes rather than Big Bang, monolithic changes.

Banks can utilise a variety of technologies under this model, including AI, machine learning and data analytics to gather and analyse customer information and then use it to deliver truly personalised products. Further to this, as customer expectations evolve, new markets will appear and can be served effectively via this customer-centric strategy.

Alongside this, taking a composable approach to banking infrastructure, will provide banks the flexibility they need to provide unique, innovative services either directly or with third party partners. For example, if a bank has a payment engine or a payment portal and they need to conduct an API call to a third party for a piece of information for a new offering, the infrastructure needs to be adaptable enough, flexible enough, to complete the task with minimal change.

While there are cost benefits to this, this approach also allows financial institutions to keep agility and responsiveness up, enabling them to be not just reactive, but proactive in adapting to the needs of the marketplace. Although historically banks tend to “travel together” when it comes to their offerings, taking an adaptive banking approach provides the opportunity for institutions to set themselves apart based on what the customer wants, not what the bank has always offered. At the same time, it makes it far easier for banks to embed themselves into new and existing ecosystems to reach – and serve – legions of new customers.

In summation, adaptive banking is all about establishing a nimble approach to business and architecture so that tweaks can be made quickly and easily, and value created for the bank’s customer faster through better offerings and improved customer experiences than has traditionally been done in the past. The first step, however, is to ensure that they have the right architecture and infrastructure.

Should customers be provided with everything they ask for?

Despite the customer now being priority number one, this remains one of the age-old questions. Financial institutions must consider whether a customer is a good customer – a profitable customer – in addition to whether supporting the offerings and infrastructure that customers have become accustomed to support the bank’s future strategy.

There are a variety of business decisions that go into this, but to have control over their own destinies, banks must focus on their core competencies, their market aspirations, know what kind of bank they want to be and identify the partners they need to be successful.

Adaptive banking enables financial institutions to execute these strategies more efficiently, because:

  • Data can be leveraged to understand where the markets are heading;
  • Market knowledge can be used to decide the strategic direction;
  • Customer needs are based on behaviour traits that are predicted by AI; and
  • Systems can evolve in line with the market, business strategy, and customer needs.

However, as the adaptive banking approach also highlights, banks today need to find ways of setting themselves apart, changing their growth models to grow the business, and creating value or the customer. One way to accomplish this could be to bring new ideas and offerings to market in weeks – using an adaptive approach to banking that leverages data and composable architectures – instead of years.

A key reason to do this is that the user of today wants services to be provided instantaneously. However, often, it is the very infrastructure within the bank that prevents a new product from being launched thanks to long-lingering legacy constraints.

Even if the right types of offerings are implemented, banks must consider whether they are sufficiently forward-looking enough to ensure the bank is at least maintaining a competitive advantage – something that can be very hard to do if it takes years for a bank to build an offering from scratch using existing approaches to software and infrastructure.  Instead, making smaller changes on flexible infrastructure, whether on-premises or in the cloud, makes it easier to stay current with market needs.

How can a bank become adaptive?

A bank can become adaptive in multiple ways. One key factor is interaction and how banks should provide their customers with the right information in a timely manner.

Given that banks remain very siloed, customers being provided with the capability of interacting with various systems and getting their request to the right person – whether it’s an actual person or AI – is one area that adaptive banking will improve.

Further to this, using customer behaviour to create an audience and raise awareness of new offerings on a targeted basis seems easy on paper. However, the separate entities of a bank – for example, the corporate bank, the retail bank, and the wealth manager – will need to be bridged with AI.

Adaptive banking that leverages AI should reveal what a corporate treasurer’s liquidity needs are going to be in the same way that forecasting would let a retail customer know how much they’re going to have available at the end of the month. In turn, this would advise the user to deposit the extra cash into a sweep or savings account, or on the corporate side, take advantage of trading trends.

We’re at an inflection point where adaptive banking will support financial institutions in enabling this, making the most of the data, driving better decisions and trusting in the framework.

How can banks engage process automation, advanced analytics, and augment the potential of the human?

AI and similar tools can be used to enable humans to serve more customers better, faster, and with greater impact. For example, when working with a corporate customer, simple automation can be used to obtain account balances, advanced analytics can examine past transactions, and AI can predict future cash and liquidity needs – a very valuable set of capabilities for both the corporate client and the bank.

But where does the human come in? In this scenario, humans can leverage trust with greater competence and provide more insightful – and accurate – recommendations on what offerings best meet the client’s needs and what action they should take next to create a deeper working relationship. And, the ability to test data, build models, and create projections more quickly enables banks to continue to provide quality advice over time, transforming banks into true strategic partners in an increasingly real-time world.

And although many of the basic tools like automation and APIs have existed for some time, the ability for banks to embrace change – to embrace the ability to adapt – has been the missing ingredient until recently because banks had been accustomed to being at the center of the client’s banking universe. The Covid-19 pandemic changed that perception in that instead of the customer coming to the bank, the bank now comes to the customer.

In order to remain competitive against their peers and non-bank third parties, the banks of today must meet the customer demand for digitization and self-service, or risk being displaced by their newer, non-traditional, tech-savvy, competitors. They must also modernize their infrastructures to achieve cost savings and create agility while connecting to new ecosystems and protecting bank and customer data.

Adopting an adaptive approach to banking gives financial institutions the flexibility to experiment, to test, to innovate, far more quickly and effectively than before, while also keeping them in line with regulatory trends both real and emerging.

What are the key benefits of becoming an adaptive bank?

The benefits of adaptive banking are numerous. Here are just a few:

Personalised customer experience: Banks can differentiate themselves by delivering a data-driven customer experience that evolves in sync with customer preferences. Customers can be sure to receive what they want, when they want, and how they want.

  • Real-time insights: Adaptive banking further strengthens the customer experience through real-time insights. Banks can provide customers with real-time information on their account balances, investment performance, cash forecasts, and more, enabling them to make more informed decisions in real time.
  • Agile product development: Through adaptive banking technologies, banks can develop and evolve their products and services in a highly agile manner.
  • Efficient operations: Both data and automation, key components of adaptive banking, help banks improve their operational efficiency and reduce operational costs.
  • Enhanced regulatory compliance: Systems used in adaptive banking provide records of transactions and customer interactions that are secure, accurate and auditable, helping banks to comply better with evolving regulations.

The flexible nature of adaptive banking not only makes it easier for banks to automate routine tasks, and this automation provides banks the opportunity to focus on upskilling and reskilling staff to adapt to changing technical requirements and market conditions. This flexibility, combined with the scalability of adaptive systems, enables banks to improve retention, reduce reliance on new hires, and increasingly hire on an as-needed basis to obtain critical skills and capabilities.

What’s required for adaptive banking?

To become an adaptive bank, four key strategies and initiatives are required:

1)      Digitise: Banks need digital solutions that can accelerate the digitization of their processes and systems, making their operations more efficient and supporting an anywhere, anytime digital environment.

2)      Modernise: Through modernization, banks can drive efficiencies, cost savings, and agility by simplifying and standardizing their IT environments while introducing new IT delivery models.

3)      Connecting: New technologies enable banks to extend their businesses into the open economy and build successful partner ecosystems.

4)      Protecting: With the ever-growing threat of financial crime, advanced security is critical for keeping bank and customer data safe and confidential. 

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