For an industry largely predicated on risk management, the banking world has seen more volatility than it would like in recent years. Challenger banks and fintechs were already creating seismic shifts in customer expectations; then came the pandemic which accelerated this inexorable shift to digital. For a brief moment, it looked like things were brightening up before banks had to contend with the dual spectre of inflation and rising interest rates – and the need to play their part in helping businesses navigate clogged supply chains and an energy crisis, and for consumers, a mounting cost-of-living crisis.
Change and challenge have of course been the only true constant – from the Great Depression to the 2008 Financial Crisis; from predicting whether customers would draw cash out of ATMs to, more recently, trusting mobile banking. But it is the sheer ferocity of volatility that has made current market conditions feel like navigating a minefield with no clear path through.
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But while the pursuit of stability is only natural, standing still is not an option. Agility is the only solution to the volatility we are seeing, and not only to counter these challenges but to turbo-charge the opportunities that arise from a moving landscape. Now is the time to challenge ways of thinking even more, and double-down on digital transformation efforts.
Seeing opportunities amid the chaos
While industry leaders are focused on putting out fires and ensuring business continuity, it’s also important to try to predict which new and urgent customer needs will become enduring trends and opportunities. This is, of course, not a straightforward exercise. As the Danish Noble prize winner Niels Bohr, once quipped: “prediction is very difficult, especially about the future”.
Yet already some of these largely untapped new ways to drive growth and deliver for customers are starting to take hold and show through. Customers are much more likely to embrace digital than they were before, creating untold opportunity for banks. A bank’s reach is no longer limited to the footprint of its branch network. It can expand as much as they, or more to the point, the regulator allows. Established banks, though still only recently starting to harness the power of digital, have a key advantage over new entrants. Their decades of institutional knowledge is difficult to build up quickly.
And while there are clear signs of distress in financial markets and mounting debt burdens, banks are in a much better position to deal with and help alleviate these headwinds than they were a decade ago. This is not just in terms of retaining higher capital reserves; now more than ever banks can leverage data analytics and automated workflows to make better and more informed credit decisions. Anticipating these changes and deploying the right products and services can yield benefits to banks. Working capital finance and loans to fund expansion are just a few examples.
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By GlobalDataTearing up the rule book in a changing world
There’s been a tacit, long-established mantra in the banking world when it comes to thinking about how to best deliver services to customers: don’t try to be all things to all people. Otherwise, there’s a risk of being a jack of all trades and a master of none – and ultimately, not actually satisfying customer needs or the bottom line. It used to be all about understanding the space the bank wanted to play in and then making trade-offs.
But the world has changed. Customer demands and expectations have never been greater. Everyone wants access to much more personalised services, and they want it 24/7, on demand and at a low cost. Simply focusing on one value discipline no longer works. Banks need to move from one discipline to another very quickly. In some parts of their business they may need to be customer intimate, in others operationally excellent and in others product leaders. Banks need to be nimble and agile. They need to be able to respond quickly, manage disruption rapidly and take advantage of opportunities fast.
Agility requires systems designed to be open
Agility naturally starts with leaders setting the right mindset and culture, but it should not stop there. It also requires a structural shift in governance. Silo-based organizations with rigid hierarchies need to be replaced with fluid, multi-disciplinary teams that allocate and prioritize their own work. Work itself becomes more varied, more focused on problem solving and less focused on ticking boxes.
Technology also plays a vital role in enabling agility. Financial institutions need a combination of rich and broad banking functionality and open and cloud-based technology because banking is evolving and becoming more flexible.
Much has already been written about the rise of platforms and ecosystems. To capitalize on these opportunities, banks need systems that are designed to be open and that can easily integrate with the outside world. They need to be able to harness microservices to tap into Banking as a Service offerings and orchestrate and compose banking experiences that delight customers – from nudge-based savings tools to crypto dealing services.
This brave new world of banking can seem daunting – especially when the solution to an uncertain landscape is to do more, for more customers. But evolution in technology and ways of working is making this possible at scale and with greater operational efficiency. The combination of sophisticated functionality and advanced technology is creating unimaginable potential. The only limit is imagination of the financial institution. Those that thrive in this environment, will be the institutions that can foster and harness agility.
Siobhan Byron is EVP, Universal Banking at Finastra
