PSD2 and Open Banking have paved the way for banking transformation. But compliance and regulation aside, what else is driving change, how should banks respond and how does this impact their service direction?
The hardest part of defining banking strategy is knowing what lies ahead. Often the best window to the future is by following the trajectory of current trends. Today, we’re facing change on an unprecedented scale including double disruption from clients and from technology. It’s clear that this will have enormous ramifications to the way banks conduct their business.
Consumer Disruption
Customer attitudes, expectations and behaviours are shifting as lifestyles become increasingly digitalized and mobile-centric. Clients are ever more disrupted from traditional banking channels, switching from branch and even online-banking portals to apps. They want banking services to be context-driven, so they can transact and access them where and when they need them most – embedded in their online experiences.
For consumers, that may mean being offered a loan when they buy a high-ticket item online or having their car pay for fuel or toll fees. For business users, it could mean accounts software automatically triggering factoring/company loans when it spots a financial gap.
To accommodate these new ‘experiences’, banks will have to work harder to make their products and services available for use in open partner networks, where digital clients hang out and want to use them.
Technology Disruption
On the technology front, digital champions such as Amazon and Netflix have shown banks the benefit and global traction that can be gained in a networked value and partner chain. These digital native brands have harnessed new API-technology and open platforms to seamlessly drive customer relations and manage service delivery.
Unfortunately, many banks are still operating on legacy and outdated back-end systems with monolithic data and function silos. This makes it difficult to embrace new API platform technologies or to deliver the connected experience that is essential to their future.
Rethinking banks
There is no doubt that banks will have to rethink their service delivery models and innovation investment to ensure they stay relevant and competitive. There are three key ways they can do this:
Become streamlined and customer-centric.
Banks can move to more complex products and develop niche segments, where their advisory and client relationships can add real value. To do this they will have to adopt the ideas and approaches of innovators to streamline operations and digitise the value-chain.
Productise Banking as a Service
New Banking as a Service models – think Solarisbank or HBL – allow banks to concentrate on dedicated segments and build the best digital products and services that can be ‘sold on’ through others. They will have to scale best-in-class innovations to deliver white-label accounts and services and offer them seamlessly to a network of digital partners.
Be a truly Digital Bank
To be the first point of call for digital customers involves providing rich service offerings that encompass omni-digital channels and even IoT and M2M applications. Services must be personalised, interlinked and targeted for dedicated user groups (e.g. SMEs), and enhanced with best-of-breed, market leading products. Importantly, it means being able to offer these through new partners while retaining control and access to the relationship and information flow.
Enabling new models
All of these new business models depend on API platform technology and Open Banking to embed innovation into new and existing infrastructure and to evolve and connect new FinTech marketplaces and ecosystems.
The good news is that banks are already embracing the change. At ndgit, we have seen a fourfold increase in API-demand as banks in UK and Europe develop their digital capabilities to avoid being dis-intermediated by new entrants with superior offerings and services.
Many are already developing next-generation services based on API-led innovation strategies and we can expect to see game-changing applications hitting the marketplace before 2020.
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Guest article - By Oliver Bohl and Birgit Spors, Advanced
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