International Finance
Banking Magazine November- December 2019 Issue

Digital technology in banking: Challenging the challenger banks

How can banks become powerful digital platform businesses connecting trading partners through trust?

Traditional banks and challenger banks alike are beginning to harness the power of digital technology to transform the services they offer. Implementing the technology alone will not provide competitive advantage in a fast-changing market – banks need to adapt the way they operate and even think about what they do for their customers. Born-in-the-cloud challengers already work this way – for incumbents it is a seismic shift to their culture and ways of working.

Challengers have already shown the potential of thinking and acting differently – with rapid growth of an increasingly loyal customer base, multiple industry awards, and rising investor confidence. As banks mature in their journey to becometrue digital disruptors they can start to review and diversify their traditional money-centric business model. Securing and lending money will be supplemented by obtaining, securing and creating benefits from other forms of personal and business owned ‘value’ – forexample, identity and data and perhaps even reputation. Banks can become a powerful digital platform business connecting trading partners through trust provided by the bank.

Obviously, there are already many digital platform businesses focusing on bringing together trading partners. These businesses lack the unique value a bank can bring – the extra assurance and integrity required to operate in a highly regulated industry.

Four ingredients for success

I believe there are four elements in today’s financial services landscape that help create a successful banking organisation that will rapidly gain market share and form long-lasting relationships with the customers.

1. Accelerate the adoption of new digital technologies
To become a digital challenger you need digital technologies. Existing monolithic systems – which have served banks well for many years – are now significantly holding banks back in terms of cost, agility, and digital services.
Adoption of cloud native applications, utility services from the public cloud, and automation of the vast majority of bank operations need to be the new norm, and banks need to get there quickly.

2. Change the mindset and the skills
For incumbent banks, the biggest challenge is one of mind-set change, leading to new skills and ways of working. Digital companies think and act differently – experimentation and even failure are encouraged, software is always the first solution to any task, collaboration and empathy are core values, agility rises to top of the performance benchmarks and everything is 100 percent data driven. Most incumbents are a long way from this, and the journey to it is not easy. Incumbent banks need to align this journey with accelerating their adoption of digital technologies.

3. Maintain and build that key value – trust
Many studies have shown that despite a number of high-profile credibility challenging events, the banking industry maintains a high level of trust from the public and from businesses. This is due in part from being within a regulated environment – designed to protect customers and trading partners. Interestinglythese studies have also shown that banks come out significantly higher than most other organisationsfor protection of non-money value; for example, a customer’s data.
Banks need to focus on their own social purpose to reinforce this unique differentiation.

4. Seek out new business models
With new digital technologies and a new mind-set banks can begin to explore new business models. The most successful digital disruptors are always looking for new ways to reinvent the value they offer and the marketsthey operate within – without being constrained by anynotional boundaries of what they do and don’t do. With a large customer base, significant volumes of data and a unique position with respect to trust, banks can disrupt other industries – and perhaps even create new ones.
Banks need to become ambitious to do this!

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