Faced with the challenge from neo-banks, the traditional giants of banking have not stood still. Indeed, the right tech can make traditional banks more attractive than the challengers, none of which can compete in terms of breadth or depth of services offered.
While a number of neo-banks have become well established in Ireland, not to mention on the global stage, they face a number of challenges as they grow, not least net revenue growth and profitability, as well as completeness of product and service offerings.
Recognising this, Ireland’s pillar banks have accelerated their pace of change so that they can respond to new market competition. The constraints of legacy IT have been removed and worked around, and continual improvements to both the product range and customer experiences are in their sights.
A sound appreciation of technology is essential for banks which want to keep hold of customers, but it is not the only factor, according to Mark Kenny, client director of retail banking at IT services and digital transformation specialists Expleo Group.
“Neo-banks such as Revolut and N26 have clearly demonstrated the power and value of slick customer experience, but there remains a strong loyalty to incumbent banks, due in part to anchor products such as mortgages, credit cards and investment products,” he said.
Neo-banks are ahead in seeking to adopt a mobile-first strategy.
Naturally, security is the top priority and businesses like ID-Pal have developed mobile-first propositions for rapid and secure identity verification.
The pillar banks are not being left behind on this front, though, and are working with fintech businesses to bring similar functionality to their customers.
“They are bringing new digital first products and services to market that harness best in class user experience, where possible removing friction from support and back office services,” said Kenny.
Clearly, though, the landscape is changing. One seismic shift is the planned exit of Ulster Bank from the Irish market, due in part to the profitability of its mortgage and commercial lending book.
Technology is also in the frame, Kenny said. “These considerations, coupled with the required technology investment to compete with the challenger banks have likely contributed to the decision. Key to the success of deploying new technology is the ability to decommission the legacy systems and all the costs associated with supporting them.”
But any view of traditional banks as dinosaurs is wide of the mark: Irish banks are, in many respects, matching neo-banks when it comes to technology.
What is more interesting to consider, said Kenny, is how the technology is deployed and how data is used in the customer journey.
“The technology will provide the mechanism to speed up processes, pull actionable insights from the data and streamline workflows, but unless the customer is at the centre of that journey not all the benefits will be realised.”
The data equation
As the mantra goes, the data is the business. Nowhere is this more true than in finance, where numbers are, quite literally, everything.
Modern banking technology strategies are typically centred around building a cloud-based banking platform underpinned by the use of structured and unstructured data, analytics and artificial intelligence.
Kenny said the goal today was to make data useful, meaning it should no longer be trapped in antiquated systems.
“The objective is to leverage data to deliver a customer experience with a streamlined back-office operation that is agile and frictionless, in stark contrast to older systems which have grown to be very complex, expensive to support and drive a significant amount of manual workarounds,” said Kenny.
In addition, Kenny said, a notable development was the evolution of customer data platforms (CDPs) which provide a holistic view of a customer’s account, spending habits, expenditures and more, allowing banks to draw intelligent inferences about their customers’ behaviours.
“This complete picture of a customer is an essential element of the personalisation strategy that can increase the level of customer self-service and can span all aspects of a customer interaction with their bank,” he said.
With the application of artificial intelligence (AI) and machine learning (ML), banks will also be able to better define their customers’ needs and identify ways to incentivise their behaviour more quickly and effectively.
“By developing self-learning models, banks could deliver a contextual experience, building customer loyalty and trust and eventually identifying new growth and revenue generation opportunities. AI can be used to predict how customers will redeem their credit card points and thus can be used to create a highly personalised shopping experience, with focused recommendations and offers to customers. Another input to consider is the analyses of customers’ social media and online activities to support the contextual experience,” he said.
This is not only being driven by the internal needs of the banks, but also because customers expect a better, more predictive, and seamless experience than ever before – and better advice – across every channel.
“As the threat of disintermediation by technology platforms becomes more real and as customer expectations for a seamless digital experience rise, banks cannot afford to stand still when it comes to digital and analytics, despite all the progress they have made to date,” said Kenny.
“Leading banks will continue to innovate and leverage their data to create a differentiated market offering.”
Disruption not destruction
The challenge today is coming from all directions. Indeed, deep-pocketed tech companies such as Apple, Google, Facebook and Amazon are doing more than dipping a toe into the world of banking.
But consumer expectations, which these companies are experts at meeting, is also driving other developments.
The latest fully digital bank, TNEX in Vietnam, was built in just nine months and developed its services to appeal to millennials and gen Z.
To achieve this, TNEX claims to be the first ‘GameTech’ bank.
“It has created a full digital experience designed around the theme of space. As such, opening an account is framed as an experience akin to buying a ticket to take a flight on a spaceship,” said Kenny.
It may sound strange, but there are lessons to be learned back down here on Planet Earth. In banking as elsewhere, incumbent suppliers are keen to add new services, but typically less keen to deviate too far from their original methodologies and contracts.
“It often takes a new entrant with a new approach or differentiated commercial model to disrupt the market,” said Kenny.
“For example, the evolution of infrastructure managed services has completely turned the IT industry on its head with AWS, Google & Azure offering a secure and flexible infrastructure as a service (IaaS) model, as well as supporting software as a service (SaaS) solutions. This allows software companies to create complete platforms in the cloud. Take Netflix or Salesforce as examples. The latest player to move to AWS is the global payment provider TSYS who will create a cloud based ‘issuer processing platform’ that will enable seamless operation of the card issuance to its clients,” he said.
Kenny said that while the landscape might be complex and something of a terra incognita, there were real opportunities to be discovered.
“At Expleo we are all about people, process, technology and data, bringing them together to ensure our client programmes are assured and delivered successfully. We look forward to the exciting opportunities that lie ahead as enablers of digital transformation, helping companies seamlessly integrate innovative technology for commercial and strategic gains,” he said.