This is an excerpt from a more comprehensive opionion piece featured in the report digitise or disintegrate by Finextra Research and Connective. Featuring expert opinions by Chris Skinner and myself.
Imagine there was no paper. Would you design your processes the same way as you have today? Most likely you would utilise the possibilities given by technology to design a frictionless process with as few steps as possible. This is unfortunately not always the case when it comes to digitisation of legacy business processes.
As we evolve from the use of IT for process assistance and case worker support to intelligent automation, the need for a new approach to digitisation is crucial. Rather than replicating obsolete practices, banks should embrace the opportunity to reinvent existing business practices.
This is particularly important in customer facing applications. Customer expectations are no longer dictated by the banks. Tomorrow’s customers expect the same user experience from their bank as they would get from Facebook, Apple and Google. It is all about convenience and context. Banks are barely scratching the surface of digitisation when it comes to the customer interface. If we look closely the average mobile banking app is just a scaled down version of the online bank. It is often eerily similar to your good old paper-based account statement presented on a screen. A new breed of challenger banks is emerging with an app-only approach which enables them to use all the inherent functions of the smart phone beyond just having a screen in your pocket.
What may be perceived as just an app is all about customer experience and interaction due to changes. Customers trust peers and peer reviews over established brands, and challenger banks are leveraging this by including social interactions at the core of the functionality. Visual content like video is growing at a rapid pace, and while incumbents are merely replicating the paper-based income statement of yesterday in mobile channels, where the incumbents rely on responsive design for mobile apps, challengers are experimenting with the Unity game engine as a basis for the mobile banking app to create a different visual experience.
Everyday banking is more than providing a mobile banking app showing a list of transactions and the ability to transfer money. Every challenger bank is attempting to provide an everyday banking experience in a contextual meaningful way. Onboarding new customers is the first and critical step for digital banking success. The center of gravity for digitisation of banking is shifting. While incumbents traditionally build around traditional core banking, challenger banks shift the center of gravity from the traditional core to their API layer. This gives challenger banks agility as well as the flexibility to expand offerings through strategic partnerships. This approach forces banks to rethink how to deal with legacy IT challenges, as IT is often built for heavy lifting rather than speed.
APIs are at the heart of the future of banking technology. If executed correctly they should increase innovation, foster collaboration, extend customer reach and lower costs compared to existing legacy systems. A key concept in the open banking paradigm is to use open source technologies to enable thirdparty developers to build financial applications on top of the banks’ existing infrastructure.
To deliver upon customer expectations as well as keeping IT costs at acceptable levels, banks must identify which pain points they aim to serve, and how they should proceed in digitalising the core processes. Look for areas that are data rich and decision poor as well as areas that are supportive and providing convenience before moving on to transformational areas with high uncertainty and complex decision-making processes. Is compliance slowing you down because of the regulatory demands, or due to yesterday’s way of staying compliant? Are you solving real problems for real customers?
As customer loyalty will be non-existent in the next generation of banking customers, the only real competitive advantage is to understand the needs of your customer and the ability to execute fast enough upon that insight. Millennials grow up fast and enter the market as we speak, there is no time to waste for banks and insurers to get on track.