Peer-to-peer lending, cryptocurrencies and the rise of nontraditional financial services providers are changing the way people buy, sell and borrow. How can established banks stay successful and profitable?
Recent technological innovations have enhanced our lives in ways that were unimaginable only a decade ago. Who could anticipate at the turn of the millennium that millions of people would do most of their shopping on their mobile phones or use their watches to check their bank balance?
It’s now the norm for new technologies to drive rapid and radical changes in society, and businesses of all shapes and sizes must learn how to adapt if they are to thrive in the years ahead. Banks are no exception. In recent years, the banking sector has witnessed profound changes in customer expectations driven by technology, the internet and digital disruptors.
Big tech makes a splash in the banking sector
Digital banks and innovative financial services providers, such as Monzo, Revolut, Starling and Atom Bank, have started attacking the value chains of traditional banks. But they are only the first wave. The disruption we’re seeing today will pale in comparison to the sweeping transformations that large, multinational technology companies are looking to push in the years ahead.
Earlier this year, Apple unveiled a credit card with Goldman Sachs. Alibaba is the world’s No. 1 mobile payment services organisation. And next year the Libra Association plans to launch Libra: a new digital currency that has been developed by Facebook and is backed by several tech giants, including eBay, Mastercard, Spotify, Uber and Vodafone. Their aim is to encourage people to use Libra to pay for goods and services over different social platforms, such as Facebook Messenger and WhatsApp.
As these new business models take off, banks could lose more than market share – they risk becoming relegated to the status of a utility. Customers of the future will choose from a wide range of financial services delivered by nonbanks, whilst banks provide the infrastructure to manage ledgers and settlements, maintain current and saving accounts, meet capital requirements, manage risk and comply with regulations – a lot of effort for little reward.
To stay relevant and compete, it’s imperative that banks embrace technology-driven changes, break down barriers to change and disrupt themselves digitally, instead of protecting and preserving antiquated business models.
Navigating oceans of possibility
For now, traditional banks do have a distinct advantage. They have long-established reputations for reliability and vast amounts of data. While Facebook may have access to information about almost every other aspect of users’ lives, it lacks meaningful data on their financial health. Knowing how many memes and cat pictures you have “liked” recently is not likely to be much help when determining your credit risk profile.
If banks can mobilize their data and turn it into actionable insights fast, they stand a fighting chance of taking the lead in the digital banking revolution. Banks that achieve this not only stand to profit financially but also pioneer radical change in the financial services sector. For example, using data to create new services that help people with their everyday lives, such as completing tax returns, reducing household bills, budgeting and managing day-to-day spending.
Becoming an intelligent organisation
Banks often find that the need to focus on efficient day-to-day operations and the desire to push through swift, effective digital transformation initiatives seem diametrically opposed. However, as F. Scott Fitzgerald once wisely noted, “the test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time, and still retain the ability to function.”
Banks today could learn a lot from these words. Driving digital transformation while simultaneously keeping the lights on is a difficult task, and shifting the emphasis from operation to innovation won’t happen overnight. However, there are proven methods that banks can adopt to help them transform into more intelligent and forward-thinking institutions.
Cutting-edge artificial intelligence (AI) and analytics tools are the catalysts of digital transformation for traditional banks. With advances in machine learning and new techniques that can mine vast amounts of data in milliseconds, banks can begin to make the innovations that will help them find patterns and insights among the noise. AI will ultimately empower them to automate fast, accurate and profitable decision making at scale across almost every aspect of their operations, from marketing and fraud prevention to credit risk assessments.
Insights – the key to success
The key to success is to harness data at speed and take advantage of unexploited opportunities to realise significant value. For example, very few banks are currently analysing transactions to identify core customer information such as life stages, family dynamics and shopping habits. These lifestyle indicators could enable more targeted, relevant marketing and the development of new services to support customers in their everyday lives.
Similarly, attitudinal insights gleaned from customer conversations, social media, emails and WhatsApp messages are already widely used to reduce complaints, but most banks are not yet able to incorporate these same insights into an overall strategy to deliver omnichannel personalised experiences.
To break down these silos and unlock the potential of data, banks need to invest in a built-for-purpose analytics and AI platform: a system that has the ability to scale across billions of data points and yield insights that can inform daily operations and decision making in near-real time.
Take Sberbank for example, which is analysing 3.5 million transactions per second, joining this data with other customer insights to deliver near-real-time, personalised experiences. This analytics-driven approach is helping the bank develop a range of innovative new services for 80 million digitally active customers.To stay relevant and compete, it’s imperative that banks embrace technology-driven changes, break down barriers to change and disrupt themselves digitally. Click To Tweet
Evolve or perish
Over the coming years, financial services providers that fail to recognise the need to adapt will struggle to compete, as tech giants and fintech disruptors siphon off their market share and revenue streams. On the other hand, organisations that place intelligent, rapid, analytics-driven decision making at the heart of their businesses stand to reap the rewards of technological innovation.
Learn more about how AI can help banks.