In the “old economy”, models of all sectors of the economy were challenged by GAFA and other uninhibited startups. All of them? No, because banks are still resisting the invaders … but with old-fashioned weaponry. If they do not decide to change their system they will be heading for a gloomy future and lower prospects.
Neobanks, cryptocurrencies, robo-advisors… even those who follow banking and financial sector news from afar have probably noticed that the sector has started to feel the effects of the digital tsunami.
It is just a groundswell for the time being; on the surface, all appears calm. Despite the undeniable commercial successes of Compte-Nickel, N26, Revolut and Orange Bank, the (tentative) offensives of GAFA and BATX and laws favouring mobility in banking, only 1 French person in 20 actually changes their financial establishment each year.
A disastrous customer experience
Is this data the official proof that the players in the sector have known how to win their customers’ loyalty? Close examination of the Bain & Company annual report on mobility in banking encourages greater caution; in fact, one customer in four states that they are ready to change banks over the next 12 months and it is even approaching one in three for customers of large traditional banks. Among the latter, customer satisfaction indicators have dropped dramatically.
Born in a context in which companies could impose their ways of operating, their contact points and their fees with impunity, banks are not yet ready to be more conciliatory and face up to a world where the customer has become king and where customer satisfaction is the only life insurance in commercial relationships.
At the core of banking systems: technology celebrating its half-century!
What are the standards of a perfect customer experience these days? Promptness, simplicity, self-service and personnalisation. This is far from the archetype of banking services but, in fact, at the very core of the DNA of players such as Google, Amazon and Apple.
Or GAFA – and even, ahead of its time, BATX in Asia – with their eye ever more insistently on the financial services market. The most powerful trump card in the competition that is looming in the field of banking is banks’ Achilles’ heel: technology.
Unlike these new giants of the internet era, banking rests on the technical base of another era, which is leaning towards obsolescence. The passing of time is beginning to weigh heavily on its Core Banking System, conceived and coded in the 1970s thanks to languages invented in 1959 (COBOL) and 1954 (Fortran).
Banking information technology: ever more rigid and costly
On this initial technological platform, bank engineers have done amazing things. After 50 years, they have managed to add in new means of payment (from bank cards to future instant payments), new customer interfaces (Minitel, internet, smartphones) and ever more sophisticated encryption algorithms; but at the expense of development costs and timescales which are ever more prohibitive and which cannot be reduced.
These two indicators, costs and timescales, are both equally worrying for the banks. They still have considerable resources, but these are tending to dwindle. The two pillars on which their economic model rests (interest rates and bank charges) are effectively weakened. Interest rates are now structurally low, and customers are less and less inclined to pay obscure costs. While taking time to think of other sources of income, the banks risk finding themselves in a critical situation.
Agility is no longer a luxury
Faced with these new players who are able to provide the market with new offers and features in the space of a few weeks, the banks can no longer allow themselves to think in terms of months or years. IT megaprojects that enable new services to be added to the Core Banking System are no longer sustainable or realistic.
They are even less so now that no-one today can foresee what customers might want 18 months, 3 years or 5 years down the line. In banking, as in any other business sector, agility is no longer a luxury but a prerequisite, a criterion for survival. It is, above all, the quality that will enable established players to test, adapt and make tomorrow’s value-added services flourish.
The end of a cycle, the beginning of a new one
Last century’s IT has given banks sterling service, but it is on its last legs. The banks must therefore change their programs, in a real as well as a figurative sense. They need someone to transplant a totally new Digital Banking System, replacing this aging Core Banking System. A system based on contemporary technology: the Cloud, real time, mobiles and APIs (application programming interfaces, these “connectors” for IT applications).
Getting out of one cycle also means entering a new one. Banking will therefore be reinventing itself thanks to technology. Even if change is always daunting, the opportunities and potential for growth are considerable. In learning to grips with this new world, banking will find a core place again, not only in our economy but also in our everyday lives.