Digital Interconnectivity: A driving force for change in the banking sector
By Michael Winterson, Managing Director for Services at global interconnection and data centre company Equinix
Digital disruption is being felt across multiple industries with the advent of applications such as Air BnB, Citymapper and Uber forcing many to either disrupt themselves or be disrupted. This has forced many businesses to completely change not only what they offer, but how they then service their increasingly demanding customer base.
Nevertheless, digital disruption has permeated certain industries at a much faster pace than others. Despite the multi-billions of pounds invested in emerging industries such as financial technology (FinTech), innovation in the banking sector has suffered from customer inertia and tightening regulation. For many years, this prevented the wholesale development of challenger technologies and saw few new entrants to the market.
However, increasing demand from modern consumers for efficient, customer-focused service means this slow adoption will not last forever. Banks see the ability to use technology to change or augment products and services faster than traditional methods of change. We’re now finally seeing the banking sector undergo a long-overdue shake up, with digital transformation at its heart.
The levelling effect
The most significant implication in banking is the opportunity offered for smaller organisations to break in to the sector – and they are doing so with gusto. The era of digital hyper-connectivity opens entirely new possibilities to reshape traditional banking into a more dynamic ecosystem, where large and small players can co-exist and offer a truly integrated set of services. This is a new development in an industry that has traditionally been dominated by a few large, monolithic entities.
The FinTech sector embodies this appetite for disruption, with companies fiercely competing for market share in emerging niches such as peer-to-peer lending, payments and currency exchange.
While many of the players are new to the market, the established institutions are not oblivious to this development and have mobilised quickly to respond. Leading banks know to continue to thrive in this climate, they must exploit their scale and financial competencies to carve out their own territory in this emerging digital landscape. We can already see this in the cases of Santander and Deutsche Bank, which are actively investing in innovation hubs to attract talent and, just as importantly, experiment with new concepts. By actively investing in the startup community, these large financial players can capture vital intelligence as to where the industry is going and adapt accordingly.
Collaboration and connectivity
Whether you are a new-to-market disrupter or an established player, it’s important to understand cross-cultural collaboration is needed between both camps to navigate through the turbulence and change that now characterises the sector.
Collaboration – in the form of partnerships or the sharing or secondment of staff between companies – will help start-ups upscale and learn from the experience of senior bankers. In the meantime, larger companies would benefit greatly from an injection of innovative thinking that new market entrants can bring.
A lot of this collaboration is happening digitally. We’re seeing companies in the banking sector move their digital infrastructure to Equinix because it offers them a completely neutral location to connect to others in their digital network. For example, UK company Beeks Financial Cloud recently joined the Equinix Cloud Exchange so that its customers can access global cloud services and networks in 21 different markets via a secure, private and low-latency interconnection model. Banking players large and small, established and new-to-market, are also recognising this rising demand for collaboration and connectivity is the key to their long-term success.
Long Term Implications
While the inherent advantages of collaboration cannot be underestimated, it is also essential that these companies pay attention to the challenges digital disruption places on the infrastructure driving the sector. As more players become active in the digital supply chain, behind-the-scenes orchestration becomes even more complex.
To combat this, banks will require the use of multiple, specialist parties all performing their role across the digital supply chain such as deposits, payment systems and customer banking services. Only by doing this will they provide an optimum service to the increasingly demanding end user. This will require deep levels of interconnection between all participants, so that data can be exchanged rapidly and securely to make the service seamless.
Companies in this sector that embrace digital interconnection will benefit from huge security, performance and efficiency advantages. Those that shy away from change and turn their back on collaboration face the risk of falling into insignificance.
Michael Winterson is the Managing Director for Services at global interconnection and data centre company Equinix.