Traditional banks have to go much further to rise to new reality in the banking landscape. According to a mixed audience of consultants and senior banking professionals that last week gathered to debate the future of the industry, it is not just the ambition towards a digital model that is key, so too is the speed with which they embark on the highly needed transition.
Last week the Management Consultancies Association (MCA) and Grant Thornton organised a debate on the future of the banking industry. The session was attended by a mixed audience of consultants and senior banking professionals, including Eric Leenders (Executive Director Retail and Private Banking at the British Banking Association), Chris Brindley (Managing Director Regional Banking at Metro Bank), Ewen Fleming (Partner & Practice Leader Financial Services Group at Grant Thornton), Darrell King (Associate Partner at CSC) and Paul Connolly (Director of the MCA Think Tank).
During the event several topics were touched upon, kicked-off by the outlook for the traditional high street bank, a theme which left the panel and audience divided. The consultants on the panel argued that high street and branches have a place for the next five to ten years, and will adapt and evolve. However, a changing customer base demanding different digital interactions and services could ultimately lead to the end of banking as a bricks and mortar business. Leenders expected significantly deeper digitisation, but expected a ‘horses for courses’ approach in which some customers would continue to need face-to-face services via branches in the foreseeable future. Brindley cited Metro Bank’s customer engagement initiatives and argued forcefully that customers would continue to demand this and that banks would continue to have a place on the high street provided they reinvented themselves as community banks. When polled, 80% of the audience agreed that high street banks had a future.
Asked for whether banks are rising to the digital challenge, Leenders said that they have no choice. “If we consider the digital agenda in its widest sense - this is the way we will increasingly live our lives - frankly it must happen.” King added: “There are two indicators of change that we have seen. First, the appointment of dedicated professionals in infrastructure, so you will now get a Chief Digital Officer. Secondly, in the last 18-24 months, firms have been more holistic in their approach to tackling digitisation and interpreting what this means for them – whereas we previously found much more isolated capabilities.”
However, Brindley highlighted a lack of understanding of the customer needs as the main factor inhibiting banks in their pursuit of digital. “I think that there is some real ignorance in traditional banks. Historically they have not really understood the customer needs. I think banks need to spend a lot more money in a lot more different places to bring their standards up to what the customer demands.”
Audience members agreed that customer service assumptions of the digital age did not yet mix well with the culture of banking. Agile approaches, the fail-fast, learn-fast ethos, and the use of open data to empower customers to self-serve are novel and challenging approach to risk for banks, especially as they have to demonstrate, more than ever before, that they are safe as houses. Polling revealed that two thirds of audience members thought their bank needed to do more to rise to the digital challenge.
Despite the need for innovation and digitisation in operations, which banks across the board typically acknowledge, execution is easier said than done. In particular legacy systems have hamstrung many of the large banks’ digital innovations, said Fleming: “The challenge is that it is really difficult to rip out everything you’ve got and still continue service. It’s like decorating and rewiring your house and still being in it. That’s going to be hard but there is no doubt that the way they have approached this has not been right.” As has been suggested elsewhere, new entrants in the market have the luxury of not having to carry the IT burden of the past, with new, off-the-shelf banking IT solutions providing them with a competitive edge.
Looking ahead, banks are set to face growing competition, not just from challenger banks but also from fast-growing FinTech startups, or even players from outside the industry such as Google and the other Digital giants. Banks though do have a strong card to play: the data they possess. This data is valuable to them and also provides the basis for value-creating partnerships with digital innovators. A recent study by BearingPoint supports the panel’s view, arguing that banks can no longer sit back, but should partner up with external partners such as telcos to capitalise on the economic potential of data. Fleming said: “This is something that I would start with, and I know that many are starting to look into that, although this is a scary subject in terms of how you sift through that data and take the learnings and insights.
“Another aspect of this is that you don’t have to do it all yourself – there are actually alliances and partnerships with people that are more expert at doing this,” added Fleming, highlighting Santander, which has struck alliances with the likes of Monitise, Funding Circle and Uber. Other examples of recent alliances that were not mentioned at the event, but which Consultancy.uk featured in the past include the joining of forces between Metro Bank and KPMG, banking entrant Atom’s cooperation with FIS, and the tie up between Accenture and Moven, a mobile based banking service that facilitates payments.
The panellists and audience concluded that banks are evolving rather than undertaking a real revolution in digital and in what it means to be a bank in the modern age. A more thoroughgoing reinvention, be that in their digital culture or in their community identity, is needed. On a positive note, Connolly says there is great potential looming on the horizon, highlighting that banks are “starting to give serious thought to strategic challenges”.