How Banks Are Leveraging Digital Transformation

Bethan Vincent

As consumer expectations shift, data becomes commercially critical and challenger banks gain traction, it’s easy to see why the banking sector could be facing a digital crisis. 

While technology is driving rapid change across adjacent industries such as insurance and financial services, It has been estimated that currently, 90 per cent of European banks invest less than 0.5 per cent of their total spending on digital.

Fighting the burden of IT infrastructure left unchanged since Internet Banking emerged in the 1990s, many banks have struggled to incorporate new technologies into their customer-facing services and back-end systems. 

However as multiple threats erode profit margins and access routes to customers, there is a clear opportunity for the banking sector to leverage digital transformation and disruptive technologies in three key areas:

Insight Using Big Data and Analytics

With some of the biggest data reserves of any industry, banking has traditionally sat on vast amounts of information embedded in multiple systems.

These datasets have only grown in size and complexity, which has made them awkward to exploit using legacy systems and traditional database management. Indeed, Big Data originally emerged as a term to describe large datasets that could not be captured, stored, managed or analysed using traditional databases. 

This issue has been recognised within multiple industries, spawning a suite of technologies that can handle disparate collections and draw useful conclusions from complex arrays. This has led to the rise of applied Big Data projects in organisations such as the NHS and the Office of National Statistics.

To stay ahead in the 2020s, banks need to leverage big data solutions and analytics to exploit the vast amounts of customer data under their control. 

For example, banks must start using technologies such as Natural Language Processing and Machine Learning to predict customer churn and act decisively to maintain customer lifetime values across their products. 

Data can also provide powerful insights into successful customer acquisition channels and help to improve the economics of capturing new business. Understanding the customer journey in a digital, data-driven context is becoming increasingly important as customers move away from bricks and mortar interactions to digital channels such as mobile apps and chatbots.

Protecting customers and preventing fraud are also rich areas for applied big data projects. Pattern analysis allows banks to recognise and act on suspicious patterns, such as transaction volume or purchase habits.

Innovation With Open Banking 

The real growth opportunities for banks now lie around portability under Open Banking, a directive introduced in 2018 which makes it possible for financial data to be used and accessed by third-parties. 

This measure was introduced by the Competition and Markets Authority with the intention of increasing competition and innovation in the banking sector and has driven the recent growth of Challenger Banks and fintech platforms.

The first wave of fintech actually came back in the 2000s, with the creation of banks such as ING who pioneered the model of banking without the branch. The second wave came after the 2008 financial crash, which preceded the rise of digital-first challenger retail banks like Atom and Monzo.

However, it is the current third wave of fintech that will have the greatest impact. Fueled by Open Banking’s progress towards data-sharing, third-wave FinTech innovation is centred around building banking products that are Application Programming Interface (API)-first, automation focused and cloud-native.

APIs are allowing platforms to become increasingly flexible and able to provide consumers with a single access point to a full array of products and solutions, which are integrated through open APIs. 

Open APIs, or publically available APIs, are especially important as they allow developers to access other applications or services and interact with backend data that can then be used to enhance their own applications.

This consolidation of data and integration between banking solutions is an important step in empowering consumers to take charge of their financial information. They also pave the way for richly featured banking products that are aware of a consumer’s entire financial situation and provide contextually relevant products or indeed even protections. 

In his speech on The Promise of Fintech, the Bank of England Governor, Mark Carney, said: “There are clear prospects for new financial technologies to make the financial system more efficient, effective and resilient.” 

Mobile-First Customer Experiences

Retail banks have traditionally had high overheads due to their customer service model that relied on a network of branches and in-branch staff to service customers.

Not only is this model cumbersome and expensive, but it’s also out of step with most consumers, who now want banks to match tech providers’ digitally-driven service levels.

Changing customer demands are driving investment in technologies that can provide service that is both digitally enabled and on-demand. Banking-as-a-service is becoming mainstream as customers expect banking services to be immediately available over the web or mobile, regardless of the customer or bank’s geographic location.

Mobile banking, in particular, has powered many of the disruptive fintech products we now see on the consumer market. Mobile-first banks such as European behemoth N26 and UK-based Revolut have built massive customer-bases by offering their services solely through mobile applications.

Alongside ease of use and portability, mobile banking allows empowers users to set personalised alerts and use device security features, such as Face ID, to protect accounts and allow friction-free login. This level of personalisation and instant account services provides customers with absolute convenience.

It’s not just new banks that are innovating in the mobile space though. The pressure is on for incumbents to develop mobile-first banking applications, as it's anticipated that 71% of customers will use mobile apps for their banking by 2024, compared to only 16% in 2014. 

Conversational banking is also on the rise, blending technology and people to provide a seamless experience to customers, regardless of channel or device.

As the name suggests, conversational banking interfaces combine messaging platforms and voice- or text-based interfaces. These can be delivered across a range of platforms, including mobile applications, websites and even social media channels such as Facebook Messenger. 

These platforms are increasingly using AI and Machine Learning to power automated chatbots which act often as a first port of call in a customer’s conversational journey. 

These bots are often used to categorize and triage customer needs, allowing them to be passed onto human agents who are able to tailored customer service, armed with precise knowledge passed on by the chatbots. 

Building the Future of Banking

From developing API solutions to building mobile-first fintech applications, we’ve made our name creating the platforms and mobile applications that drive organisations forward in the rapidly changing banking and financial service sectors.

Whether you're looking to develop the next challenger bank or innovate on top of existing services, our banking technology services are powered by deep industry experience. Get in touch today to speak with one of our consultants about your project.

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