The evolving digital landscape of banks

Whether banks partner with fintechs to speed up the digital journey or compete against them, one thing is for sure, the real ‘Big Bang’ in digital transformation has yet to come


An All Party Parliamentary Group (APPG) has recently said the UK should widen its open banking model to speed up the growth of fintech as part of a broader evolution in financial services. The APPG has called on the UK government to start a new ‘big bang,’ imitating the deregulation of the financial markets in the 1980s. The group has said that by eliminating the shackles from fintechs, the government can make strides in levelling up the country by reducing economic imbalances between different parts.

Meanwhile, in the US, a new report from the cloud-based digital banking provider Alkami Technology, a leading cloud-based digital solutions provider for banks and credit unions, highlighted five trends banks and credit unions should be aware of during their digital evolution. One of them regards the possibility of partnerships with fintech companies, which may be the easiest and cheapest way to complete the digital journey.

This report showed that 73 percent of the population trusts financial institutions with their personal information, but fintech is not far behind, with 63 percent saying they trust the companies with their data. Around 50 percent of banks and 40 percent of credit unions have partnered with a fintech company within the past three years due to competitive pressure.

Sanat Rao, CEO of Infosys Finacle, a global banking software and platforms business, considers the digital journey as a way to create and deliver value to customers. “Digitisation enables banks to acquire more customers, build better products and services faster and at lower cost, manage risks well, and run operations efficiently. In other words, it’s the key to sustaining the business,” he said.

In the age of ecosystem-driven banking, a partnership is the natural order of things

Rao explained that over time, banks have realised that collaborating – rather than competing – with fintech usually creates value and synergy for both. While banks are looking to embed their services in the primary journeys of other providers, fintech will enable this transition, for instance, by helping banks to evolve marketplaces or insert their offerings in different consumer journeys.

“As long as the partnership is a net positive and not a zero-sum game, the price the partners have to pay is irrelevant. And there is so much room for growth and untapped opportunity that most partnerships end up increasing value for everyone. In the age of ecosystem-driven banking, a partnership is the natural order of things,” he said.

Rao claimed that every bank would work with several partners across the value chain to create and deliver products in ecosystem banking. While many partnerships will have no conflict of interest, in distribution partnerships, however, some conflicts may arise. “For example, if customers use Google Pay to open deposit accounts, banks will lose that part of the engagement. Banks need to ask whether they can deliver greater value to customers via these partnerships than by serving them independently. If the answer is yes, that is how the industry will go. Then the only option for banks is to stay in those partnerships, even if it means becoming embedded in other product journeys because that is what customers will want,” he added.

Silvia Davi, chief marketing officer of the fintech firm Symbiont, with its headquarters in New York, believes that the digital journey consists of moving from inefficient ‘paper’ or manual processes to benefit from the tools that digitised solutions bring to the table, such as smart contracts. “Via this technology, for example, we are enabling market participants globally to automate the reconciliation process, and there are multiple solutions that can be built on top of these high-quality data sources,” she said.

Davi highlighted that while in the short term there is a time and budget commitment – with inaction way more expensive in the long run – the long-term consequences are immensely positive, driven by the immutability, transparency, and apparent efficiencies that will result from utilising distributed ledger technologies.

“There may be some growing pains and tweaks needed to optimise the benefits of these relationships. From our experience, driven by our desire to constantly evolve and introduce new technology releases, we are committed to that process, and the banking sector is as well,” she added.

Working through conflicts
Likewise, Carol Hamilton, senior vice president of Provenir, a global leader in AI-powered risk decisioning software, sees the digital journey as “a non-stop set of continuous interactions between an organisation and their customers.” It starts from that first moment of contact, either a customer browsing a website online or applying for a product on a mobile device. Financial services providers want to maximise every digital interaction along the journey. To do that, they need to up their game for consumers who demand that digital interactions be quick and informative. This is why such organisations are utilising more data and more sophisticated technology to understand better who they’re doing business with and use that intelligence to optimise every component along the way.

“Embracing digital is very powerful; however, some organisations digitise processes on paper or legacy technology and move to more updated online systems. But true digital transformation shifts how that company is thinking and how it is interacting with customers to meet their needs for a more engaging and memorable digital banking experience,” she said. Nevertheless, Hamilton does not deny that there are a few other disadvantages of moving to complete digital transformation, especially as it gets even more intelligent.

“We are at a solid place in the industry where even organisations who weren’t historically operating in financial services can offer intelligent financing products through an app or other digital interactions. Successful digital transformation offers more intelligent products and services to the end customer. These are more valuable to that end customer and thus the organisation offering them,” she added.

Hamilton explained that to compete in such a busy market, the profile and needs of a customer need to be identified more quickly than ever, and data-driven actions need to follow in order to be successful. “For most customers, this is about embracing speed and optimised communication and products. For the minority, data-driven actions at speed also ensure the organisation is protected,” Hamilton said.

Also, in contrast with what Sanat Rao stated, she does not exclude a conflict of interest between the two businesses, highlighting that as traditional banks diversify, fintechs could soon do the same. “Data could be commoditised. It’s always about finding out that next layer of value and staying ahead to meet customer expectations. There will always be conflicts – it’s all about working through them,” she suggested.

However, there are plenty of options to accelerate this digital transformation. As Hamilton suggested, one of them is diversifying the business, for example, leading banks launching neobanks and targeting different parts of the market while diversifying their portfolio. Open banking has also been a groundbreaking development in the financial market. Regulation will also play a role in accelerating or decelerating digital transformation.

Adapt or die
Eric Bierry, CEO of the French fintech Sopra Banking Software, said that the digital journey is about more than meeting consumers’ changing expectations; it is also a reaction to shifting business models and industry regulations. “To take full advantage of these new business models, banks need to work with fintechs and avoid the mistake of trying to become them. This means providing fintechs with access to the core competencies that are part of banks’ DNA, like licensing, lending and security, freeing them up to focus on innovation and consumer experience. The result is a relationship where both parties can bring their strongest capabilities to consumers,” said Bierry.

He pointed out that banks are unequivocal about their decision to enter the digital ecosystem, and those unwilling to transform digitally will face extinction. “Fintechs are increasingly becoming the main point of contact for end-customers, from lending money to opening bank accounts and making payments. Banks will eventually be disintermediated from the value chain without digital infrastructures to enable partnerships with these companies. For banks that do leap to participate in the digital ecosystem, partnership opportunities in any industry, not just finance, are endless. Supporting fintechs and neobanks is the first and most obvious stop. Still, by offering their lending, security and compliance services to an auto manufacturer, banks can bring financing directly to consumers in any industry and cement their position in the industry for years to come,” Bierry added.

Undoubtedly, every bank in the world is working to transform. However, according to the Innovation in Retail Banking 2021 survey conducted by Infosys Finacle alongside Qorus, a non-profit organisation in the financial services industry, 14 percent of respondents said that their organisations had deployed digital transformation at scale and delivered as expected.

Sanat Rao explained that this result does not mean that other banks are not trying, but the reason for this low number is the constantly advancing goalpost of digital transformation (see Fig 1). “While banks are moving ahead, so is the transformation horizon, making it seem like banks aren’t going the distance. But that is not true,” he concluded.