Time is money: why banking must change, fast

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Digital disruptions, such as open banking, robo-advisors, mobile payments and aggressive cybercriminals, are forcing traditional banks to embrace rapid and widespread transformation.

Changing consumer habits and rapidly evolving mobile lifestyles are creating opportunities for disruptive entrants to the financial services space. New services, such as digital-only banking, online forex transaction platforms and peer-to-peer (P2P) lending, are eating away at the businesses of established providers, who are constrained by legacy systems and structures.

According to PwC, 46 percent of consumers use only digital channels on mobile devices, laptops and PCs to communicate with financial institutions, preferring not to use brick-and-mortar branches or call centers at all. In France, for instance, Orange Bank’s Djingo chatbot handles over 24,000 customer conversations weekly, while Wells Fargo customers in the U.S. speak to the bank’s chatbots on Facebook – and withdraw cash from ATMs using smartphones, rather than a card.

The impact of mobile in driving hyper-personalization, omnichannel distribution, collaboration and open banking cannot be overstated.

Where you are

In Africa, mobile banking is giving unbanked populations access to financial services. In economically advanced nations, high street banks are closing as customers engage with services online. The British Bankers’ Association claims customer visits to UK bank branches has shrunk 32 percent since 2011.

Today’s bank customers will communicate through social media, while millennials (86 percent of whom already use only digital payments) expect providers to be as tech-savvy as they are.

Despite the move to mobile, trust isn’t entirely digital. Customers still seek emotional connection when making big decisions, which means banks must offer both online and physical touchpoints. Established banks can exploit their existing premises for that final mile, while mobile-only banks –such as Starling Bank (which works with the UK Post Office to offer a high street presence) – find partners to close this gap.

One-third of millennials, meanwhile, complain that the onboarding process to create new bank accounts takes too long, according to Javelin Strategy & Research. These competing needs must all be met as banking moves to the omnichannel.

Cash through chaos

The 2013 European Payment Services Directive permitted financial firms to use information concerning individual accounts in order to provide personalized financial services. Open Banking means providers can aggregate and analyze vast quantities of financial data and use that information to deliver attractive new products, partnerships and services.

Customers of Société Générale’s Crédit du Nord subsidiary can view all their accounts from other banks and even make transfers between them, for example. Open Banking also makes new collaborative business models, such as crowd-funding or ride-sharing, possible for financial providers. Sixty-three percent of banking and insurance customers are willing to share their personal data in exchange for personalized products and services, Accenture claims.

Banks aren’t the only enterprises with the capacity to handle data. Apple, Google and PayPal are chipping away at some of the sector’s most profitable services with mobile-payment solutions, which 68 percent of Europeans already use. Meanwhile, global VC fintech investments reached $36.6 billion in 2018, up 329 percent over five years. The challenger bank Monzo recently began market-testing the provision of business banking services, while in France, Ditto lets users open accounts in multiple currencies with a few clicks.

Established providers can use these same technologies to deliver highly personalized services. However in a survey conducted by Gartner last year, 45 percent of financial industry CIOs see organizational culture as the biggest barrier to such digital initiatives. Incumbents have an opportunity to create better digital experiences for consumers and build on their existing strengths in data capture and processing and the brand trust that derives from their regulated status and longevity in the market.

Traditionally, banks rely on highly complex legacy systems that have been quite capable of handling payment processing and management. This means existing IT systems must be adapted and new technologies deployed, even as the sector struggles to deliver on regulatory targets. However, replacing these systems poses costs high enough that 40 percent of existing banks have not yet put a digital transformation strategy in place.

Technological change

To better manage costs, many banks are establishing partnerships in which trusted external digital platforms and services join their existing infrastructure through provision of APIs that link them to legacy banking systems.

Many are adopting cloud-based, third-party financial services that IDC expects will slash technology infrastructure costs by 25 percent in 2019. It’s a shrewd response to the current environment in which challengers can rapidly deliver competing financial services at lower cost because they are unencumbered by legacy business models or technologies.

Orange Business Services provides banking customers with first-hand experience in the sector drawn from its Orange Money service, combined with global expertise in network and technology deployment. Cybersecurity is boosted by AI network traffic management solutions, such as those offered by Orange Cyberdefense.

The disruption isn’t over yet

New technologies, including artificial intelligence, biometrics and robot process automation (RPA), continue to disrupt the sector.

Robo-advisors

Visa, Mastercard and South Africa’s First National Bank are all exploring the use of fingerprints to authorize card payments and ATM cash withdrawals. JPMorgan Chase has a solution that processes 12,000 credit agreements in seconds, rather than the 360,000 human hours such processing usually takes. Wealth management firms are using RPA to help advisors provide better advice with insights harvested from multiple data sources. Orange Business Services and Additiv offer a cloud-based RPA solution for this.

Further out, incoming technologies – such as augmented reality or blockchain – mean digital transformation will continue, which means business agility and partnerships are essential to survive and thrive in the rapidly changing banking industry.

Orange Business Services offers cloud, API and network expertise and services to help financial service providers thrive in this digital transformation. Read about what we have to offer.