Banking, and the financial industry in general, have certainly seen a lot of changes in recent years. In the past, retail banking clients would open an account at the local bank used by their parents, and from there, they would proceed to get all their banking done at that same bank. Deposits, payments, withdrawals, investments, and loans would all be coursed through that bank, usually for the client’s whole life. Then, the cycle of client retention would repeat itself if the client had children.
This was extremely favorable to banks and resulted in very low acquisition costs and minimal client roster instability. Banks could simply wait and clients would come to them, simply because they lacked options and were hesitant to take their business elsewhere.
All of that has been turned on its head in recent years. The rise of technology, most notably that of mobile tech, and especially the current global COVID-19 pandemic, have irrevocably changed the face of banking, and there’s likely no going back to the way things used to be. To continue to be competitive in today’s financial markets, banks must recognize the signs of the times and shift their strategies to a cloud-driven digital transformation supported by an extensive upgrade to their core banking processes.
If you’re a member of a bank’s leadership team and are seeking new ways to remain competitive in the current banking era that we find ourselves in, this article is for you. Here are some tips for keeping your bank relevant in today’s tech-driven world.
Prepare for Open Banking
Banks of the past essentially operated in silos. Information on client status, creditworthiness, accounts, and other client details was often treated as proprietary, and was guarded jealously by bank management. The idea of openly sharing this information with competitor banks and national chains would have been abhorrent to bank managers of the past.
All of that protectionist thinking had to change with the arrival of banking networks powered by the internet. Clients suddenly expected more flexibility and convenience in their banking services, eventually giving rise to the current standard of open banking. In this environment, banks openly share client information with one another, updating each other on account status and balances in real time. This has resulted in current conveniences such as withdrawal from banks that aren’t your own, streamlined payment systems, and other similar services.
Banks that are not equipped for the open banking environment are ill-equipped to remain competitive. Today’s clients have come to expect the services that have arisen from open banking, and any bank unable to provide these services would likely be dropped in favor of one of the many that do.
Consider Shifting to BaaS
If the global coronavirus pandemic has taught us anything, it’s that we can no longer depend on in-person services and engagements as our sole transaction mechanism. So many common daily in-person activities, including school, work, and shopping, had to be moved to digital platforms to protect people from the spread of the virus. This has applied to banking as well. Once people could no longer go to physical bank branches to get the services they needed, they turned to the banking industry’s newly devised competition: financial technology (fintech) apps, which afforded users convenience and immediate access to financial products no matter where they were.
While some of the larger national banking chains may still consider these financial industry newcomers as competitors and take a more antagonistic approach in their relationships with them, local, mid-sized banks may want to seek avenues for collaboration with them instead. One way to do this is by providing Banking-as-a-Service (BaaS). In this way, banks streamline their service offerings and provide them to fintech companies as backend support, with the fintechs themselves providing user experience and front-end development.
In many ways, this is a win-win for both banks and the apps they service. On the bank’s side, they can continue to provide the savings, loan, and payment services that are generally banks’ core competencies, streamlining their services and cutting out client acquisition and marketing functions, along with the costs associated with these. Fintechs, for their part, are able to bring their app to market faster, providing high-quality services comparable to what banks would normally offer, packaged in an app that is UX-optimized and is designed to appeal to more tech-savvy users. Fintech companies would no longer have to jump over the series of regulatory hurdles that traditional banks have to, before being permitted to operate.
While the face of banking seems to have changed in recent years, at its core, its goal of rerouting capital and making it accessible to credible, bankable clients remains the same. The tools by which this goal is achieved, however, have changed considerably, and to remain relevant, banks must use these tools to their advantage.