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How can traditional Banks stay relevant against disruptive Fintechs in the digital revolution?

Nordic banks are front-runners in digitalization in Europe, but are facing increased intense competition from new disruptive Fintech players. New ways of thinking are required to take the right customer, organizational, technology decisions to the right time being able to navigate and thrive in the on-going digital revolution in the banking sector.

How can traditional Banks stay relevant against disruptive Fintechs in the digital revolution?

Nordic banking sector is the most digitalized banking market in Europe, but traditional players are challenged by new Fintech services and heavy own technical debt.

The focus for many Nordic banks so far has been digitalization of existing analogue process and implementation of internet- and mobile based platforms to manage almost any customer aspects instantly through self-service. The result is quite visible; in the last 10 years the number of branch offices has decreased by around 1/3 and the trend is continuing. However, the competition in the banking industry will be more intensive in the upcoming years:

  • Big tech companies, such as Amazon, Apple, Facebook, with a huge customer base and new Fintech players with disruptive technology are entering the financial industry landscape. Agile approaches to enhancing their service offers and attacking parts of the traditional banks value chains.

  • Neobanks with a lean and agile core banking systems with minimized technical debt are to deliver on the demands of flexible products and pricing, new regulations, and payment types. They are winning market share at around one third of the cost of traditional banks, since they are not dependent on legacy governance, branch organization and IT-systems.

  • Crowdfunding-platforms and peer-to-peer (P2P) lending services provide capital for growing business through automated processes. In just a few years, the crowdfunding market had a significant growth in the Nordics. Traditional banks are not any more the only lender of capital to private and corporate customers in the market.

Parallel to new actors are entering the market, traditional banks have own challenges that requiring radical rethinking:

  • Traditional banks have headaches with the own organizational and technical debt. Each part of the business is highly segmented in its own silos with their own IT-systems. Duplicated customer information is supported by high-cost monolithic core banking platforms with large technical debt, a legacy customer data model and limited configuration options. It results in a poorer customer experience and impact the bank’s efficiency and cost level.

  • Banks remains conservative when it comes to large-scale IT investments. Supported by low industry returns on equity in the last and upcoming years, banks feel the need to maintain their legacy systems. But increased costs consumed by legacy systems to mitigate technical debt are impacting and obstruct the required renewal towards customer-centric, agile, and lean platforms.

  • Lower switching hurdles for customers, support by governmental regulations, are increasing the pressure on banks to manage customer relations in a different way.

Improving efficiency and customer experience is increasingly important for traditional banks as they no longer have the playing field to themselves and must ask the following questions:

How should a bank create a strategy and operating model while becoming customer centric?

The bank strategy and operating model should have an increased focus on the unique selling proposition (USP) along the Bank’s value streams while having the customer in the center. The organization and technology ecosystem needs to be agile accelerating the time to market of new products and services, attracting the right new customers, retaining existing customer and being able to defend their own competitive advantage. Some relevant actions:

- Create an advanced business modelling tool based on “big-data” which can simulate operational impact on different market scenarios and strategies.

- Use Artificial intelligence to target the right customers and know your existing customer better.

- Use easy configurable tools tailoring products and services to offer to your target customers.

- Use digital collaboration tools proactively to stay in touch and be relevant with your customers

How should a bank adjust their future capability gaps and how to attract right talents?

Branch and back-office processes will be more and more digitalized and with implementation of Artificial Intelligence in the upcoming years, it is estimated that thousands of personnel are becoming obsolete. In parallel, traditional banks must attract new talented specialists for new technology and customer experience. Some relevant actions:

- Create a digital culture journey- and capability plan which is anchored at Board level and part of all Management team members KPI’s.

- Establish a digital skill base catalogue and new role descriptions for all employees.

- Build a continuous digital learning plan for all employees.

- Establish a digital training center

How should the technology design respond to high uncertainty and constant disruptive changes?

Old non-customer focused legacy IT ecosystems should be unlocked and moved from monolithic and inflexible core banking suites with high technical debt. Banks needs to move towards best of breeds modular services with open API towards third parties and other ecosystems being able to accelerate disruptive changes. Some relevant actions:

- Create a digital partner and out-sourcing strategy which includes collaboration with Fintech companies.

- Use new process orchestration and configuration tools to create flexible easy maintainable customer and lending processes, including master data management.

- Create a modular target digital banking architecture with open APIs towards third parties and other eco-systems.

- Create a unique Omni-channel interface towards your customers.

- Share IT-development and maintenance cost of non-critical business services with others.

All Banks should now have started their digital journey and feel the urgency because new Fintech’s entered the market have passion of a digital revolution. It is key to navigate with pace, so ramp up your digital journey now, Fintech’s will not wait.

About dbanQ

dbanQ was established in 2020 in Norway with a Nordic footprint. Our mission is to help Banks and Financial Services Companies to transform successfully through the Digital Banking Revolution. dbanQ has extensive experience in supporting digital transformation initiatives from a single value chain up to a whole renewal of the core banking ecosystem. We have built up a broad understanding of both business and IT capabilities over the years, which are used in deliveries from dbanQ.

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