The banking industry is on the brink of a transformation driven by technological advances that have created the potential for new products, services and delivery channels that promise to reshape the very definition of what banking means.
But for established financial institutions, this seismic shake-up is destabilizing long-standing business models and giving rise to competition from a new crop of providers, unencumbered by legacy tech systems, whose offerings are purpose-built for financial services’ digital future.
To continue to compete and maintain relevance in the industry’s new era, banks must adapt, delivering products and service models that meet customers’ changing expectations, while strategically re-evaluating their business strategy to determine what role they’re best suited to play in the financial services ecosystem of tomorrow.
In a recent interview with PYMNTS, Technisys head of digital core Michael Haney highlighted three of the biggest priorities that should be top-of-mind for banks amid the industry’s tech transformation:
1. Adopt an omnichannel and embedded services model
While previous waves of banking innovation saw the rise of customer self-service and the digital channel, the current phase is in many ways a more fundamental re-imagining of what types of services banks can offer and how customers can access them, Haney said. Those services increasingly are operable across multiple channels and being embedded into non-financial platforms, including social media, messaging apps and the internet of things, he noted.
“Now I can bank on my smart watch or I can bank through my smart speaker,” Haney said. “But more importantly, I can bank in channels that [banks] don't own directly, even in non-financial brands, bringing banking to the point of need and not just limiting it to [a bank’s] own branded channels.”
For banks, building products suited for this omnichannel, embedded paradigm requires a new, modular approach to development–and the flexible core banking tech stack to support that process.
“Buy now, pay later, early wage access, roundup savings; all these things require a bank to have building blocks from the payments world, the lending world and the deposits world and reassemble them in completely different ways. You can't do that with a Common Business Oriented Language (COBOL) and mainframe system,” Haney said.
2. Decide what kind of bank you want to be
The shift toward omnichannel and embedded financial services will force banks to make a key decision, Haney said: whether to continue to “own” their customer relationships across the expanding multitude of channels–and make the necessary investment to do so–or whether to take a more background role by providing the banking services that undergird other brands’ offerings.
“There are going to be a set of banks that are going to want to maintain all of those channels and be front and center and have their brand front and center,” Haney observed. “Other banks are… going to be more interested in the Banking as a Service or embedded finance [model].”
Through the use of application programming interfaces (APIs), the latter group of banks essentially will function as a utility, providing the back-end services and licensing that consumer-facing platforms rely upon to offer financial services functionalities within the context of their platforms and consumer journeys.
“Then of course there'll be banks that will do both. But you really have to say, ‘What kind of bank do I want to be in the future?’” Haney advised.
3. Embrace change and collaboration
Whatever the role a financial institution decides to play in the emerging banking ecosystem, success will require an openness to new ideas and experimentation. As those are characteristics most banks traditionally aren’t known for embodying, a shift in mindset will be critical to evolution and continued relevance, Haney advised.
“It's not even about having the perfect model or having things succeed or fail. It's about that willingness to embrace change and to be willing to experiment just as the parameters around you change,” said Haney.
He cited the tech sector’s prevailing support of experimentation as a good model for banks to follow.
Collaboration also will be key, Haney noted–both with trusted partner providers as well as customers themselves.
“Don't be afraid to work with consultancies and system integrators and software vendors,” Haney said. “Put the customer at the center. Embrace… co-creating and co-innovating with customers; get them involved in beta testing, pilot testing; all of that.”
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