The hot topics in retail banking are becoming increasingly clear as banks start to consider much more strongly their approaches and strategies for the digital economy.
Broadly speaking, three themeshave taken centre stage, first, around Digitalisation itself and how banks are embracing the challenge of making this happen. Secondly, Banking as a Platform as a strategic imperative in order to create a flexible approach, resulting in the need to reshape propositions to work in an open way. Finally, we are seeing increasing interest in ‘Cognitive banking’ – utilising Artificial Intelligence (AI) and Machine Learning techniques, as banks come to terms with the need to process and derive value and insight from increasingly large amounts of available data.
The headline for digitalisation itself is that pretty much most of the institutions you speak to now are very much aware of this as a challenge, with the tier one institutions already having programmes that are advanced in terms of their thinking, structures, approach and strategy. Within the tier two space the picture is a little bit more mixed, with a reasonably large number of tier two institutions only just beginning to consider their approach to digitalisation. Many also have quite some way to go in terms of executing their strategy.
Banking as a Platform
As a response to the needs of digitalisation, many large institutions have embraced a ‘Bank as a Platform’ strategy. The desire is to ensure excellence in customer engagement and customer order-taking separated from service components such as core banking. This has been driving that agenda quite substantially, enabling firms to separate customer experience from the core engines of the financial services institution.
New entrants have popularised this kind of approach, ensuring a more rapid assimilation of new services and new ways of engaging with customers. We have also seen that as a result of embracing Banking as a Platform, there is an increasing desire to look at cloud and open API technologies as enablers to support this new approach. This notion of a bank as a series of ‘brands’ is becoming increasingly resonant in the market.
Last but not least, with the large amounts of valuable new data, we see an increasing trend towards what is being termed ‘Cognitive banking’. Utilising AI and Machine Learning techniques and tools in order to derive value from the increasingly large amounts of data being generated is certainly a rising trend. AI is still at an early stage for many institutions in terms of the amount of effort and investment being applied, but it is certainly a theme that is resonating strongly and plays into the general digitalisation agenda which is increasingly driven by the need for information to be put to good use in order to derive value for organisations. And that’s not just the selling of data, it is about targeting customers and identifying the right needs, providing the right services and delivering value for customers, examples include better insight from purchase behaviour. I.e. buying cigarettes and how that impacts on health or life premiums.
We see that ‘Digitalisation’ is ‘the vision’ being embraced by many financial service organisations both large and small. Banking as a Platform is a key strategic imperative to realise this vision and artificial intelligence is being embraced to manage increasing amounts of data that results from digitalisation.
If we look specifically at the UK retail banking market, the customer is very much at the centre of most digital transformation projects. Meeting their needs and expectations is paramount. Banks realise that they are sitting on a wealth of information, especially unstructured customer data, which is not currently being used to its full potential. AI solutions such as chatbots, process automation and personalised interfaces, (powered by open APIs), are critical to the success of digital transformation projects.
Challenges such as legacy systems, migrating to the cloud, ‘siloed thinking’ in organisations and overcoming outdated security concerns remain as items to be addressed. However, it is encouraging to see so many UK banks embracing new ways of working and recognising the increasing importance of new technologies for their organisation and their customers. There is still much work to be done, but as systems, skills and technologies develop, we can look forward to seeing even more examples of successful digital transformation projects in the near future.