At a time when brand loyalty is becoming a thing of the past, banks know they have to continually innovate in order to stay relevant to their customers.
Across the world financial institutions understand the importance of implementing digital technologies to continue to meet and exceed the expectations of their customers. However, the pace at which banks are making the switch to digital is not quick enough.
The reason why the adoption of digital services has lagged behind is not due to a lack of appetite or vision within the industry. The majority of banks are currently facing difficulties in making changes to their IT processes, while ensuring a consistent customer experience. The recent Lloyds TSB systems outage has highlighted the challenges associated with the current IT infrastructure, and the need to rapidly bridge old and new systems.
The IT outage represents the issues the financial industry is facing as a whole. Banks across the world are grappling with the need to fully digitise their services but are coming up against multiple issues due to siloed data operations, complex process automation, and inflexible legacy systems.
Sadly, there is no such thing as a simple upgrade to make the transition to digitisation complete, and traditional ways of thinking about banking – a closed shop protected by very high walls – must be retired.
Digitisation is not about simply adding more automation to manual processes, bolting on new channels of delivery to existing offerings, or adding more siloed processes to overloaded legacy systems. At the same time, we don’t have to throw the baby out with the bathwater – it is also not about ripping out existing legacy systems.
We are witnessing a desire from mid-size banks to build a fully digital offering, as they are realising that a “do nothing”, “rip & replace” or “extend and augment” approach to IT modernisation is not enough to keep ahead of the competition and provide the best customer service.
Citibank’s 2017 report on the banking software market shows an increasing investment in new IT by European banks. Gartner also projects an 8% Compound Annual Growth Rate in spend on banking software between 2016-2020.
For banks to take advantage of new digital technologies, while at the same time ensuring further outages and issues with customer experience are mitigated, they must embrace ‘Open Banking’ – the opening up their digital architecture to technology specialists.
‘Open Banking’ provides a flexible ‘digital core’ on top of existing systems, in the mid and back layer of core banking processes, enabling banks to function the most effectively and provide customers with a service they already expect, receive, and beyond.
The opening up of APIs to trusted third parties will equip banks with the technology needed to transform their digital operations, and deliver products to customers quickly and effectively through harnessing 2-speed IT. At the present moment, existing systems cannot deliver this technology and most digital banking solutions can only deliver partial capabilities.
The impact of ‘Open Banking’ will go beyond IT operations, reshaping the future of the financial services market. We will begin to see collaborations among banks, fintech companies, and other professional service providers, such as accountants and lawyers. These service providers will have the possibility to interconnect via banks’ application programming interfaces (APIs), offering a greater range of services to customers.
‘Open Banking’ will enable a greater array of services to be provided to end-users. For example, the integration of mobile wallets, blockchain, video chat, and data analytics to complement their existing offerings.
The provision of new digital technologies and services is only made possible with this marketplace banking approach, supporting existing legacy systems through new layers of IT. This allows banks to deliver improved functionality and flexibility to customers and reduce operational costs in the short-to medium-term.
It’s clear that for banks to be future proofed, ‘Open Banking’ is the key to ensuring high levels of customer service and greater flexibility to their product offerings. Banks must now ‘adapt to the new normal’ for them to continue to meet the expectations of their customers. Only this approach will allow banks to be equipped with the right IT capabilities for them to stay competitive.