Farida Gibbs, CEO of Gibbs Hybrid, discusses the pressures on banks to update their processes with new technology.
Following the first increase in interest rates in ten years, banks have been under extreme pressure to pass on profits to customers. This pressure comes from a growingly savvy customer base educated in its financial rights by easier access to online news and financial advice.
Technology is changing the nature of banking much more directly. Customers now interact with their banks far beyond the branch, through online banking on computers and mobile devices, communicating with chat bots as well as real personnel, and using a variety of apps to do this. They expect their financial services providers to keep up with the pace of this change.
In January 2018 the Second Payment Services Directive will come into play, meaning banks will have to share their data with other rival financial providers and aggregator sites, and allow third-party developers into the back-end of their processes, taking payments directly without the intercession of the bank – all with the consent of the customer, of course.
In other words, aggregators and financial services providers will have access to customer’s data and be able to show them how best to spend their money, and which providers to entrust it with. Tech giants like Facebook and Amazon will be able to make payments directly, without the bank’s help.
With competition more clear and fluid, and money much easier to move around between providers, established banks will be greatly exposed to competition from FinTechs and new rival financial services companies.
A large number of new, agile FinTech challengers have emerged to challenge more established banks in recent years. Competing on grounds of personalised service, low rates, and the speed and convenience provided by taking the upmost advantage of new technology, these new providers threaten to take away the established customer bases of larger banks.
The key advantage banks have over these new challengers is their large, established customer bases. At the moment, these are relatively immobile, with customer account switching reaching a new low in September this year.
But as regulations like PSD2 begin to take effect, banks will face mounting competition from FinTech challengers, as switching becomes easier and the reasons to change providers for a better deal will become clearer. Many banks currently rely on outdated legacy systems that cannot support the pace of change required by this.
To deal with this, an increasing number of banks are turning to cloud-migration programmes, shifting their existing processes from these legacy systems to the cloud. This gives them the agility and efficiency to stay up to speed with the constantly changing innovations in technology.
But to do this they need digital expertise, in order to ease this kind of transition in an informed way. This means that more banks are turning to partnerships with outside experts, to help them modernise in the most efficient way possible.
However, although one in three people in the UK use a mobile banking app, banks should not respond to this drive for modernisation by compromising on in-person service. Many banks have seen the increased use of app-based banking as a sign to cut back on branches, with a record number of 762 closures this year in the UK.
In fact, moving processes to the cloud offers the chance to free up staff to focus on more in-person services; the other key advantage established banks hold over their FinTech competitors. This presence of real staff lends credibility that FinTechs still lack. Forty-three per cent of customers who have used a FinTech service are worried about being defrauded, according to a study by Blumberg Capital.
To future-proof their businesses, banks need to juggle the best of both worlds, making the most of their inherent advantages, whilst catching up with the speed and efficiency of tech-enabled FinTechs. A variety of established banks are now turning to outside consultants to help them do this, uploading their outdated processes to the cloud to provide a more streamlined, agile service that responds to customer’s changing demands. But in using this external expertise, they must not lose sight of what their own staff can offer. Cloud programmes allow traditional providers to get the best of both worlds: not only improving the agility and convenience of their offering, but allowing them to make the most of their personal staff.