Banks with a platform that allows them to adapt to continuous change will be able to make banking better for billions more people and also help de-risk economies.
Banking today is unrecognizably better for hundreds of millions of people than it was even 10 years ago. In 2010, payments took days instead of minutes to clear; no one had heard of a banking app, let alone installed one on their phone; retail banks relied on high-street branches; fraud mitigation was manual, based on rules; and data was heavily siloed in departments, slowing decisions and stopping it from being used to reduce risk.
Some of the ways in which banking has changed are trivial: I once queued for hours to open an account and had to send a fax to reset a pin code; today that can all be done online in minutes. Some changes are more fundamental, such as the use of artificial intelligence to spot and stop fraud, or data analytics to cut risk in loan approvals.
SMEs, the backbone of any economy, are some of the big winners in this new world of open banking and digital financial services.
Companies who are too small to have a fully-fledged finance department have often had to jump through hoops to find out what bank products are best for them. Today, digital banks such as OakNorth and New10 specifically target SMEs by offering services that add value – such as cashflow analysis and timely instant loans.
Advances in banking have been made possible thanks to new technology – and fintechs offering commoditized, affordable uses for that new technology. These organizations provide payment services, customer identity verification, business intelligence solutions, forex services, credit checks, point-of-sale credit and much more. And new solutions are launched all the time, with the aim of making banking even better for many millions more customers.
Good news for customers
But as time goes on, the very definition of “better banking” evolves, too. New services become possible, available and eventually desirable. And if other industries much further down the road in their digital journey – such as media, telecoms and retail – are anything to go by, change in banking is only going to continue to gather pace. The digital banking genie is truly out of the bottle.
Ultimately, we’re heading towards banking as a utility. It won’t matter whether the financial services are provided by a telco, retailer, bank or another kind of company. Instead it will be how banking and banking-like services are integrated into our lives or businesses that counts.
Already, there are many companies without banking licenses offering useful banking-type services: digital wallets like PayPal, where customers can store funds and make payments; supermarket loyalty schemes, where the customer can spend the points in store or with partners; or airmiles, which can be spent buying flights or access to airport lounges. All are good examples. It seems likely that more such services will become available, so long as they follow regulators’ rules that protect consumer interests.
All this is good news for customers, who get more suitable products and services and a better experience right at the point where they need it. It is also good news for national economies. A dynamic banking sector with carefully focused regulation and many, rather than a few, very large players is more stable. If one or even a number of banks becomes distressed, there is less risk of systemic failure overall.
As economies, society and technology continue to evolve, adapting becomes a Sisyphean task. It never stops. Banks must be set up to run at the pace of digital change. Being agile – with the ability to change according to need – is a prerequisite to survival. That is the philosophy behind the technical and business decisions banks make when they follow a composable strategy.
Better banking for millions
As an industry, we need to enable better banking, to allow banks to be agile and flexible as digital takes a firmer hold. If banks can’t adapt to change, they can’t respond to the market competition, the macro environment – such as interest-rate changes or the impact of Covid-19 – or new technology from fintechs.
Banks willing to adapt their thinking and take a digital approach can benefit from the same opportunities and expect similar rewards. By being able to leverage their balance sheets, they also have a distinct advantage over neo and challenger banks when it comes to navigating a rapidly evolving market.
Whether you’re a challenger bank starting with a clean sheet or an incumbent with a digital strategy, agility and adaptability are key when building a digital technology platform. And that means a platform that is open to allow for collaboration. By commoditizing the basics, together we can create an environment that enables the next wave of innovation.
The next big shift in banking, coming around 2025, will be based on changes in consumer behavior – when millennials and Generation Z will make up the majority of the workforce. These generations of digital natives interact with technology very differently and their expectations will drive change not just in retail but in business banking, too. Although many are still too young to have bank accounts, they are already used to sending and receiving payments via money apps like gohenry, making them less reliant on traditional banks and more open to services provided by fintechs.
The evidence to date is that change is making banking better for millions. There’s no reason why that is going to stop, so let’s make it better for billions in the years to come. The responsibility is on the players to make sure they can run with it.
Eugene Danilkis, chief executive, Mambu