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Challenger banks challenged: Why fresh IT still needs help

This year Bangladesh Bank experienced an attack where hackers attempted to steal $1billion dollars, adding to the list of banks that are vulnerable to cyber-attacks. Companies such as JP Morgan Chase, Best Buy and other major financial services and retailers, have experienced cyber-attacks in some form. Whether this was a direct data breach, a DDoS attack or a hack of the operational systems. The outcome was always the same, the loss of money was not the only cost.

Recent news has focused on legacy systems, stating that they cannot withstand current data security demands required to keep customer data secure. The impact of this has been the introduction of the new General Data Protection Regulation and other new data legislation. Newer financial institutions and challenger banks should be better equipped as they use newer technology systems without any legacy burden and are able to be upgraded with limited issues. In theory, better security is a probability if the bank can take a holistic view on its IT operations without spending too much time and energy digging out the data.    

Challenger banks are becoming increasingly popular across the world, as they are becoming a viable alternative to the established providers of Financial Services. This is in part due to the technology they deploy their services over making them more accessible to the ‘unbanked’ population often found in emerging markets. They also appeal to the customers in the developed world, who are looking for real-time customer service.     

Surprisingly, however, the biggest data breach at the moment happened at a relatively new bank, Tesco, which was established in 1997. Having new technology and suffering a data breach is quite a shock. Especially since challenger banks’ IT systems are relatively young in age compared to systems used by the high-street juggernauts. Challenger banks, like Tesco, are based on modern technologies, and should be designed to withstand advanced cyber-attacks. 

Data breach survival skills

A data breach is a catastrophe for any business. The possibility of fines from regulators, brand damage and customer churn, directly leads to revenue decline. For banks the implications can be even more extreme, customers rely on a bank’s security. Lose their perceived security and they lose credibility. It is key to note there is a difference between the way old and new banks ‘reboot’ after a security issue. As more customers bank online, banks need to be quicker at identifying a security issue and solving it, because with customers banking in real-time they may be able to spot the error before the bank does.   

High-street banking giants can survive data breaches because they have a long standing reputation and a mature brand to prove reliability, with long standing customer relationships to use as examples of business longevity. It is more difficult for new banks to regain trust as they don’t have the years of customer loyalty behind them. This is a good instance where legacy is beneficial for banks, new banks don’t have the same customer legacy so are still perceived as new and untested.  The damage still needs to be repaired. This is where the challenger banks have the advantage. Their newer systems have the capabilities to withstand or, at least, recover from a breach because systems aren’t as disparate and auditing can be done at a much quicker pace. But all is not lost if banks engrain security as a feature of their customer experience strategy. By spending the time and money reassuring their customers that they take security seriously, it will encourage customer loyalty and have policies in place for customers during times when data breaches have occurred.    

The best way for challenger banks to recover lost faith from their customers would be to highlight the implementation of new technologies that are consistently risk assessed and bring value to their customers. Ideally, featuring technologies that will be able to create bespoke offers with the intrinsic knowledge of the customer through data analysis, giving the customers exactly what they need rather than want. These newer technologies with security held as a hygiene factor, are able to mitigate the effects of a hack faster than banks with old legacy systems. This is mainly in part to legacy technology takes a lot longer to run and operate. With easy deployment challenger banks can increase their security and reassure customers within hours that there is a new system in place. Creating an even great emphasis on time and speed which are crucial to the modern customer.

Maximising customer lifetime value

Additionally, the importance of this technology is that it maximises customer lifetime value, helping retain and ‘lure’ back customers. Banks should ideally be able to rollback all changes done during the attack. This ensures customers don’t lose their money even if the bank does, and enhance customer experience and loyalty. Some of the features most appealing to customers today are real-time balance information, deep-dive spending data, biometric security, open API integrations, no foreign exchange charges, simple money transfers and artificial intelligence layering for more predictive banking. These innovations all give new banks an advantage over ‘legacy’ banks.

Data breaches often provide a vital reminder for banks to test their systems on a regular basis to see if they are ahead of the game. Financial Services providers, young and old, will be in the thick of this ‘rebooting’ as they try and revolutionise banking systems for the masses. 

Loyalty to established banks is wavering because they cannot get to their customers’ needs fast enough and cannot supply their demands on time. Additionally, established banks are struggling to adapt to the consumer technology, people are looking to transfer their banking to the digital world with 24 access via the internet on all devices. Banks that are slow to respond to this see increased customer churn. But the loyalty to challenger banks is also wavering due to successful cyber-attacks. By focusing on customer experience as the core principle of transformation, challenger banks will be able to provide added value and retain their customers. The weakness of challenger banks only gives traditional banks a millisecond of breathing space. The big banks will also need to adapt or face becoming obsolete.

Nanda Kumar, CEO, SunTec
Image source: Shutterstock/MaximP

Nanda Kumar
A technology evangelist with over 26 years in the industry, Nanda Kumar has shaped the wave of customer-centric software platforms and solutions for pricing and billing, particularly in transaction-intensive verticals.