After (mostly) surviving the financial downturn of 2008, one could be forgiven for thinking that banks and the bankers that work within them are safe and secure. After all, if the worst financial crisis in a generation couldn’t derail them, then what could?
That banks are safe is not necessarily the case though, and I would argue that banks are in fact in more danger now than they have ever been. Challenged by a number of fintech and digital disruptors, banks face a stark choice – adapt or face extinction.
If banks are unable or unwilling to meeting changing consumer and business requirements, then there are other providers that are only too willing to do so, and perhaps it will be collaboration with such providers that can save the banking sector as we know it.
A creaking system
10 years ago no-one would have thought that Microsoft could be toppled from a position of worldwide dominance in business software and systems. But just as it and other tech giants – Nokia, IBM, Blackberry – have come under sustained attack and have had to reinvent themselves, shrink or even face extinction, it’s clear that banks will have to engage strongly in digital in order to remain relevant in the shifting economy.
This shouldn’t really come as much of a surprise, given that many banking systems were set up hundreds of years ago. Structures and processes were put in place to suit the banking requirements of the age, and while the requirements have changed drastically, not all of the processes have, meaning many banking systems are in dire need of change.
We work with a number of banks, and speak regularly with many others, and the need to change is something that almost everyone in the sector is aware of. But this is not easy for most banks, who are usually very big, not that agile and unable to respond quickly to changing market conditions and emerging fintech innovation.
This has meant a whole wave of challengers and disruptors have emerged, from fintech specialists offering a radical new approach, to supermarkets offering traditional services in a smarter and more engaging way. Could this mean the entire banking system is at risk?
Collaboration the key to digitisation
Banks are investing significant sums in replacing their legacy systems, and working to upgrade capabilities so that customers can now do online what they once could only do in branch. The problem is that by digitising existing services, banks are simply doing what their customers expect of them: moving a service to a different channel.
This is not enough and banks should be digitising the whole business, not certain services. This is a major challenge and banks are not structured to do this easily. This means that collaboration is the only smart way forward for banks to digitise their business sufficiently to survive.
Banks should be embarking on partnership programmes, that look to identify the most innovative fintech and digital startups and bring them into the bank’s eco-system. Rather than seeing such companies as potential rivals, they should instead collaborate with more agile and flexible companies to offer customers a superior and differentiated service to the competition.
A number of banks have already started this process. In the UK, Santander has partnered with peer-to-peer lender Funding Circle. The bank refers SMBs with rejected business loan applications to them, and in return Funding Circle sends those SMBs needing banking services to Santander. This move is indicative of a general acknowledgement that it makes little sense for a bank to build systems and software from scratch when others have already done a lot of the hard work for them.
What is clear, is that banks face a clear and present danger to their survival prospects. As the banking needs of consumers and businesses change forever, it grows apparent that banks are not structured to meet those needs. But banks have recognised the need for change, and the next step is to truly embrace disruptors who’ve brought innovation to the sector, and find the right partnership model in which to do so.