Technology is changing the banking industry like never before, and the results are unprecedented. We’ve written before about the impact of technology and how banks are evolving, but in this post we want to take a deeper dive into how the industry is planning to grow and develop its product range in this new technological climate.
To get to grips with this complex topic we spoke with Cagri Onur, Executive Director at Brickendon, a leading provider of tech consultancy for financial sector organisations.
Developing and evolving: Customers
Increasingly, the British public are choosing to embrace online solutions for various aspects of their life. We go online to order the weekly food shop, catch-up with distant relatives on social media and even find love via apps. Given the public appetite for living online, it’s little surprise this has translated to how people approach banking.
“The way banking products are distributed has changed significantly over the last decade, in particular as both consumer and corporate clients have embraced the digital age and banks have incorporated the use of the internet and mobile channels into their business models,” says Cagri. “Algorithmic and high-frequency trading, which used to be a niche solution, have become widely used trading methodologies for major trading firms, brokerages, retailers and large investment banks,” he adds.
The 2018 ‘Way We Bank Now’ report from trade body UK Finance, found 71% of UK adults used online banking in 2017. In addition, almost 22 million UK adults regularly used banking apps, a 12% rise from 2016. But it’s not just how we access those services that have changed; the very formats have been altered too. Take the way we lend and borrow money, for example. “Peer-to-peer lending and peer-to-peer payments have emerged as two major disruptive solutions, which have provided a real alternative to traditional banking products,” says Cagri.
But this shift has come with some tough lessons for banks. “Banks have spent large amounts of money and resource integrating their products and systems so that customers can have a continuous and consistent service while dealing with different divisions of the same institution. Banks have learnt in the process that they should invest in technology, not just aggressively, but also wisely, so that new technology doesn’t create additional problems whilst addressing existing ones,” says Cagri.
Developing and evolving: Corporate clients
Of course, this shifting banking landscape is set to impact corporate clients as well as everyday customers. But do they have different demands? “Latency is a key requirement for satisfying the demand of corporate clients as investment banks have to offer pricing and deal closure within milliseconds. In order to meet this requirement, banks are continuously having to adapt to, and integrate, the latest technology,” says Cagri. “Digital distribution channels are very important for a bank’s brand and customer loyalty, in particular as banks become synonymous with their digital trading platforms,” he adds.
Tech innovation to develop products
With the dramatic and rampant changes that have taken place in the last decade, it’s interesting to consider how technological innovation might impact product ranges in the near future. One of the most widespread ways this will affect banks is the demand for ‘best-in-class’ digital products and omni-channel offerings. “Digital banking channels used to be an innovation and a differentiator, but these are now commonplace. The key today is to have the best-in-class digital banking product, which has the same look and feel across multiple digital channels (omni-channel offerings),” says Cagri.
More specific changes? Near instant trading. “A combination of machine learning and nanotechnology has opened the door for more sophisticated algorithmic trading strategies based on the analysis of historical and current market data. It has also paved the way for the latency of high-frequency trading to be reduced from milliseconds to nanoseconds,” says Cagri. Technological innovation will also encourage “near real-time payments (blockchain or otherwise),” he adds.
Using technology to increase customer loyalty
As competing for customer loyalty becomes increasingly important, we are seeing banks develop more incentives such as cashback on mortgages. But how can technology itself encourage customer loyalty? “The key to retaining customer loyalty is customisation. Institutions that have the systems and processes in place to enable products to be customised according to unique customer needs will have the competitive edge to not only retain existing customers but also attract new ones,” says Cagri. And when it comes to businesses, accessibility is key. “Businesses want the ability to trade 24 hours a day, five days a week, with minimum account, margin and costs,” he adds.
Learning to thrive
The banking industry continues to rapidly develop and banks need to keep up with it if they are going to remain successful. But how do they thrive? Here are Cagri’s top three tips:
1. Offer customisation: “Banks will need to move away from the standard one-size-fits-all products as their profitability continues to decrease. Instead, they need to offer more customisable and, in some cases, tailor-made solutions for their clients.”
2. Automate to free up resources: “Banks need to continue automating their repetitive processes and free up more human resource to analyse the outcome of data analytics with the aim of developing more innovative solutions.”
3. Be proactive, not reactive: “Instead of just responding to customer needs, banks should proactively come up with innovative solutions and push them to their customers in the same way that technology companies have been doing for the past 10 years.”
Traditional banks need to adapt and develop, fast. “Challenger banks already pose a real and immediate threat in the consumer banking sector. For corporate banks, the heavy regulation and size of the investment already act as a barrier to entry, but this is not insurmountable and there is no room for complacency. All institutions need to continuously innovate and invest in disruptive technology if they are to survive. It is too late to wait for a technology firm to make the first move,” says Cagri.