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THE BANK OF 2030: A REVOLUTION FOR CUSTOMERS

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By Venkatesh Varadarajan, Partner in Financial Services, Infosys Consulting

 

We are witnessing an evolution. Banking is changing in so many ways – the move away from cash, and even cards, the urgent uptake of online banking, and a growing interest in personal investing. The slow and steady pace of the industry has been accelerated more in the last year than in the entire decade prior.

The results of this transition are already becoming visible: the Treasury has raised the maximum contactless spend, hundreds of bank branches from the likes of HSBC and M&S Bank continue to close, and record numbers of people are opening investment accounts, with Hargreaves Lansdown reporting a 40% jump in late 2020, bringing down its average age of investor by 7 years. Similarly, competing platform AJ Bell also saw its customer base grow by 30% last year, to almost 300,000. More than half of its new users are under the age of 40.

All of this will shake-up the status-quo, putting customers at the centre of the banking sector once again. It’s becoming increasingly apparent that over the next decade, banking will be put back into the people’s hands – so by 2030, what will our banks look like?

 

Power to the people

Venkatesh Varadarajan

The digitalisation of the banking sector has also been its democratisation. The fairly recent introduction of user-friendly, mobile-based banking apps has shortened the distance between customers and their money. This is an indicator of a larger financial trend: most people now want to be actively involved in their finances. Customers want a bank that they feel is ‘theirs’, hence the success of challenger banks like Monzo and Starling, where personalisation and ownership is integrated into every interaction.

But this goes far beyond mobile banking apps and annual spending roundups. Banks have an opportunity to capitalise on this desire for more involved banking, creating new products and services that support their customers 24/7. Whether this shift takes shape through shares and trading platforms, broader mortgages, loans and credit card offerings, loyalty and voucher schemes, or even Buy Now, Pay Later (BNPL) services, one thing is for sure: by 2030, banks will certainly be a bigger part of our daily lives, offering products and services that converge to enhance our entire lifestyles, not just our finances.

Of course, to make this diversification a reality, the technical foundations need to be laid soon. For challengers like Monzo and Klarna, whose stacks incorporate the latest technologies and digital estates, they may be able to move faster. But legacy banks have a unique opportunity too, to make the most of their huge cash reserves and loyal customer base.

 

Best of both worlds

Firstly, banks don’t need to upend their entire tech stack to offer more services to customers. While there will always be a natural competition among old-timers and challengers, the banks of 2030 will exist – and work together – much more harmoniously.

Many customers will likely already recognise the benefits of both kinds of bank – large High Street banks are reliable and have better lending power, whilst younger upstarts, with more mature digital platforms, will be using AI to approve loans quickly and humanoid bots to provide efficient customer support. In a decade, however, this will no longer be a choice that customers have to make. Instead, these benefits will be consolidated through open banking. Banks will be actively pulling in data from customers’ other bank accounts and profiles, collaborating on products and services, and working in tandem to give consumers the full visibility they demand. This will allow them to slice and dice the benefits of each bank as they please, in line with their individual lifestyles.

 

Innovating from the outside in

That said, as competition between new and old continues to grow fiercer, the big banks will have no choice but to continue to innovate. In the past, when banks innovate, they do so from the inside out. This has often created a disconnect between product, process and platform; ultimately diluting the impact of the changes they make.

For the innovation team in the bank of 2030, this approach will be reversed. New products and services will be led by the customer, not the other way around. First up, the mining and analysis of customer data will be key for this. From social media, spending history and a growing number of other data sources, mapping of customer behaviour will become increasingly accessible to innovation teams. Ensuring these insights are put to good use will be the differentiator between those who sink and those who swim.

To enable this outwards-in approach, there needs to be a shift from the siloed development teams that exist currently, to an over-arching, business-wide innovation hub. This could mean a Chief Innovation Officer – a role most banks don’t have in their boardroom – or a team of creative, innovative thinkers who sit across the whole business, feeding into product, IT, transformation, and CX programmes. Putting customers first will rely on finding the right people to make that happen, who will build innovation into every decision.

The first steps of change are often the hardest, and we’ve seen legacy, High Street banks suffer because of this. But the future of banking looks promising for the most important party – the customer. The democratisation of banking, whether that be through greater control and visibility of finances, or the technologies that will enable a 360-degree helping hand with our daily lives, will be a key marker of progress. By 2030, banking should be for everyone. It’s on banks both big and small to make this a reality.

 

Banking

LEGACY INFRASTRUCTURES MUSTN’T HOLD BACK INNOVATION IN FINANCIAL SERVICES

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By

Ian Perry, Principal Solution Architect at Zscaler

 

We are living in a changed world; one of hybrid home/office work and customers who may never return to bank branches and the services of the high street. According to RFi Group, 73 per cent of UK consumers interact with their main bank via digital banking at least once a week, and only 23 per cent believe nothing can replace what they get in a branch. Meanwhile, institutions including JP Morgan, HSBC and Nationwide have all indicated an intention to retain new higher levels of homeworking.

Now that employees work from a multitude of locations and customers bank and manage their money online the race is on to adapt processes, systems and support structures for safe, secure and productive homeworking and digital access for customers. Inevitably, this calls into question legacy infrastructures in financial services and how they might impact digital progress.

 

New tools, old systems?

The question is, how can banks and other financial institutions securely provide a higher level of remote access to their systems and applications when incumbent infrastructures were developed for an entirely different time?

Of course, the first thing to note is that banks aren’t coming at the problem from a standing start. Oft-cited legacy infrastructures have been added to over time so that many set-ups are now an on-premise/cloud-hosted hybrid. In fact, the finance sector has invested heavily in cloud infrastructures and cloud-based office applications.

The issue is how to harmonise this set-up so that it works for users and organisations as a whole. Here, there is work still to be done. It’s often the case that core banking applications remain in mainframe on-premise networks, whilst other operational tools reside in the cloud. Cloud-based Office 365 is a case in point. It supports digital working, as organisations need it to, but a range of its benefits and functions are at odds with legacy network setups.

Inevitably, when a product or service innovation reaches implementation planning stage, the starting point is the existing network, its systems and processes. The hard part is flipping this approach to assess what the resulting experience will be from the user point of view, but that is exactly what’s needed. It’s an approach that competing market disruptors have been ideally placed to adopt from day one.

However, that needn’t mean that financial institutions must completely overhaul their legacy infrastructure – something that would be expensive and complicated. They can still fully capitalise on the benefits of cloud-based services, among them flexibility, productivity, business continuity and the right customer and user experience.

 

Zero Trust without friction

One way is to take a ‘Zero Trust’ approach. As a result of recognised risks, 72 per cent of companies are prioritising the adoption of such a security model. This resets a data security approach from one that traditionally secured the perimeter to one that protects users, devices and business resources.

It’s a shift in emphasis from securing the network to securing each access and doing so without introducing friction into processes for users. We can think of legacy digital protection methods as a visitor getting a key from reception and being allowed to wander around the building, and compare that to a frictionless cloud experience in which a security guard shows the visitor directly to the room they need.

The Zero Trust model lends itself to high levels of remote access, which is exactly the situation organisations are now in. Employees work from anywhere, from a range of devices, and customers access services previously provided in-person online. Applications are no longer exclusively within the data centre, they are outside the network perimeter meaning that traffic must be enabled to run securely through the internet, rather than through corporate IT. Doing so not only equips organisations for the way things are today, it can also reduce the cost of individual site maintenance and enable the full benefit of cloud-based tools.

The technology now exists to make high levels of security completely invisible and so, with a growing number of security processes now taking place in the cloud, educating customers will be key. The industry must come together to improve user interfaces to signal what’s taking place behind the scenes.

With the right security approach, financial services can deliver on new access priorities to support their workforces and serve customers. Convenience, as well as security, should be the aim along with a strategy that ensures legacy doesn’t hold back innovation. That way, banks and other finance institutions can begin to fully capitalise on the benefits of cloud, adapt to meet customer demands as they evolve and compete in a disrupted market.

 

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Banking

BANKS OF THE FUTURE WILL BE ASSEMBLED, NOT BUILT: HOW BANKS CAN EXPAND AND INNOVATE BY RETHINKING THEIR PARTNERSHIPS

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Author: Kelly Switt, Senior Director, Financial Services Strategy, Ecosystem and Strategic Partnerships, Red Hat

 

The financial services business ecosystem has been radically reshaped in recent years and is arguably more dynamic and ripe for innovation than it has ever been. Banks that take bolder steps to build strategic partnerships have the potential to dramatically transform themselves and the industry. While open banking reforms have encouraged organizations to open up their architectures to each other, there is much potential still to be unlocked: beyond the minimum of meeting regulations by the deadline and exposing the APIs required for aggregation services, there is a vast untapped opportunity for creativity in joint business models. The kind of opportunity that has long since been grasped by web-scale companies and fintech startups.

 

Deutsche Bank, BBVA, and neobank bunq are examples of banks that have understood the value of creating open finance communities. However, the majority of financial organisations are yet to embrace deeper collaborations that truly take advantage of external parties’ ready-built solutions, which would save time and resources and enable inhouse teams to focus on differentiating their business where it really counts. So how can an organisation break free of legacy structures and attitudes to better integrate and engage with partners?

 

Step 1: Adopting a growth mindset

Establishing deeper strategic relationships with partners requires a mindset shift for much of the industry. Traditionally, banks have tended to see third parties as vendors, treating the relationship as a transactional exchange, in the context of legal agreements that set forth the provisions and conditions of the services to be provided. Instead, banks need to adopt a growth mindset that encourages organisations to look beyond their own four walls, and embraces participation in a wider community. By engaging with an ecosystem of partners and treating them as a valuable additional set of experts, banks can accelerate problem-solving and reach their business goals faster.

 

Step 2: Aligning internally as an organisation

Before bringing in a partner to tackle a business problem, an organisation needs to conduct an internal assessment. It’s important for all departments within an organisation (IT, sales, marketing, etc.) to contribute their perspective on unpacking why a problem exists across the organisation: what are compliance and risk issues? What are the technical challenges? In what ways is the business impacted? Once everyone is grounded on why the problem needs fixing, it is a much clearer path to identify both the business and technology capabilities needed to solve the problem – i.e. the tools as well as the people skills. If different departments aren’t set up to engage with each other, it’s time to dismantle barriers and build bridges to ensure everyone is included in this discovery phase.

 

Step 3: Be open with partners

When the business has galvanised around its key objectives and the capabilities it needs to move forward, the organisation can look at engaging partners that have experience and expertise in the right areas. The more information that is shared with a partner about the company’s challenges, opportunities and goals, the more empowered and committed the partner will be to help meet the desired outcomes. Armed with insights, partners can help connect the dots and invite further parties to a project, leading to a network effect that benefits both the organisation and the wider ecosystem. To ensure that everyone continues moving in the same direction every step of the way, it is crucial to have transparent discussions in which ideas can be exchanged freely, and to make decisions in an open and collaborative way. Disagreement and constructive feedback must be encouraged – partners should be empowered to speak up with concerns – as this is an important part of mitigating risk.

 

Step 4: Humanise business relationships

Business relationships are personal relationships. The most successful ones are built on mutual understanding of what makes each other tick, what motivates someone to behave the way they do and what drives their performance. Getting to know people on a more personal level can create deep-seated relationships where everyone feels fully invested in driving the project forward. The banking sector may not be known for encouraging vulnerability, but revealing a bit more of the human in us is a key ingredient for building trusted relationships. The pandemic has added urgency to the need for greater empathy to lead people through difficulties, and has shown how people can come together through shared emotional experiences to better manage adversity.

 

Step 5: Build on a consistent technology platform

The technical foundation for engaging in any new partnership is a strong integration strategy. An organization may need to rethink its system architectures and shift towards open platform models. In the case of using containers to take advantage of cloud scale, establishing a common platform at the base of the technology stack that runs consistently across an organisation can provide more control, security and stability. A common application management layer that is agnostic to the underlying technology and based on open APIs gives internal teams together with partners greater freedom to collaborate, accelerating innovation. It helps avert the risk of ending up with many custom integrations, which can lead to cost overruns, outages or services-related issues for customers.

 

Unleashing future possibilities

Progress is able to happen much faster when people and teams work together. As more and more businesses in banking and adjacent industries wake up to the opportunities inherent in a move towards greater openness, we will start to see unprecedented innovation in financial services, and myriad other areas of our lives, creating better and more inclusive customer experiences for societies globally. Banks of the future will be assembled, not built.

 

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