The ‘open banking revolution’ and the tech underpinning banks’ digital transformation

Banks must fully embrace digital transformation for the open banking revolution to be a success.

Over the last five years, there have been countless reports, surveys and research on digital transformation and the challenges therein. The banking sector is no stranger to these issues and, in many respects, feels them more acutely than most. Established banks have seen the fintech surge disrupt every part of their industry, and an inability to adapt is a real threat to their existence. However, its top ranks rarely have the technical knowledge or skills to keep apace, with aging IT infrastructures, internal processes and legacy thinking all holding them back further still. Yet while this all paints a picture of an industry in flux, the Royal Bank of Scotland’s decision to close 158 branches this year says more about banking’s digital transformation than any report or banking exec ever could. Its customers are going digital and are not coming back. Period.   

The only way that traditional banks can survive in this environment is to fully embrace the industry’s digital transformation. Their peers in Fintech have done this incredibly effectively, spearheading the use of mobile banking services, blockchain technology, AI and peer-to-peer business models to great success. These are the kinds of areas on which traditional banks must focus their efforts as they finally become data businesses, not just finance businesses. After all, data is the foundation on which banks will build the next generation of consumer-first and digital-first financial services needed post-PSD2. 

PSD2 and the ‘open banking revolution’ expedite digital transformation  

According to a new report from Accenture, Artificial intelligence will be the main way that banks interact with their customers within the next three years. Future generations may never set foot inside a physical bank branch, all of which means that digital innovation is not an either/or proposition for financial institutions. PSD2 and the ‘open banking revolution’ will further expedite the process, with customers finding it easier than ever to switch banks, as well as access the data that helps them decide if, where and when to move. Banks don’t want their customer base to have their heads turned by a more attractive proposition and, to prevent this from happening, we’ll see them deliver their services in a much more personalised manner. Banks will employ far more of the user data that they hold, in a bid to provide the digital experience that their customers demand: from access to all their accounts in a single app; to the information and alerts they need, when they need them.    

However, this is easier said than done. Executives at large banks may be able to envision such a future, and realise that digital innovation is sorely needed, but most banks don’t how to get there, or even where to start. More so than any other industry, banks have a huge range of customised and custom-built IT applications and processes in their back offices. This makes it harder for executives to narrow down one specific vision of what they want from their technologies, contributing to a more general ‘if it ain’t broke’ mentality. This can no longer be allowed to continue. Digital transformation can’t be a slight upgrade here and there as things break or become obsolete – it calls for a complete re-think of all business operations and the technologies underpinning them. For this, banks need to ensure they create services which are:   

  • Designed for increasingly mobile users
  • Highly personalised and responsive
  • Always available and always performant

Next generation mobility   

Already, consumers expect access to their banking services whatever, wherever and whenever, PSD2 will only increase this demand. The CMA has already made mobile apps a cornerstone of its open banking expectations, but banks will have to go far above and beyond these measures to ensure that they keep their customers on-side.   

First and foremost, the user experience must be responsive, seamless and consistent, regardless of the user, device or location. The bank must also be update and refresh its services on the fly. Adding a new loan calculator or currency converter tool may not sound like much in isolation. However, these kinds of services, provided the base app provides a flawless user experience, may be enough to keep customers engaged and convince them that they’re receiving the best service available.   

Make it Personal 

The ability to perform simple banking tasks and transactions is the low bar over which all mobile banking apps must pass. The next step is to provide a truly personalised banking experience. Customers desperately want an experience that reacts to their needs in real-time, and will vote with their wallets to get one. For example, if a customer has an unexpected expense that puts them at risk of being overdrawn, their banking app should have the ability to warn them and even suggest ways to avoid charges. Similarly, for customers travelling abroad, updates on local exchange rates and locations where they can withdraw cash can make all the difference.   

To personalise their applications in this way, banks need to have complete control over their customer data; and be able to use and access it in real-time. After all, the average customer will be more attracted to the bank that can respond to their needs right now, rather than the one that can do so days or weeks down the line. Or worse still, when they have to arrange an in-branch appointment.

Always on’ banking, but not always online   

Opening branches at the weekend was once the pinnacle of banking convenience. No longer. Today, banks must ensure that their services are available to customers 24/7. Any kind of downtime will result in negative headlines and swathes of lost customers, and even a short period with sluggish performance can be enough to drive customers away. This means designing application infrastructure with this in mind, for which the database is essential yet frequently overlooked. Banks must ensure that he database that powers their apps, the servers it runs on and the software on the device can offer flawless performance at all times.    

24/7 performance becomes critical as even more customers turn to online and mobile banking. The inherent risk of using banking apps is having periods with limited or disrupted connectivity. As such, banks need to design their apps with this in mind, by offering the most popular functions that will still engage and support customers even if they have no internet service. For instance, a customer travelling on the London Underground might not be able to make transactions or switch banks immediately, but they should still be able to check their balance and queue transactions for when the connection is restored. Unfortunately, customers are usually far quicker to recognise their apps’ failings than their successes, but this “offline-first” approach can still provide a key differentiator for banks. 

I have no doubt that the open banking revolution will be a good thing for customers and for the finance industry as a whole. However, this is only provided that banks do finally embrace digital transformation and prioritise the technology and processes underpinning the consumer-friendly banking services that the open banking revolution calls for. Those that don’t won’t survive, it’s as simple as that.    

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