Will the Constraints of Traditional Systems Cost Banks the Next Generation of Customers?

By Sathish N, SVP-Head Digital Core, Strategy & Transformation, SunTec Group

Banks are a mixed bag when it comes to utilising technology’s full potential: some are taking full advantage while some are trying, and often struggling, to apply technology to their existing businesses.

The digital age has changed the way people interact and do business. Advances in technology, combined with the demand for a digital banking experience from consumers continues to push banking towards a digitised future. From branch banking to web, mobile banking, bots, robot advisor technology and other innovations have now become the norm, transforming the entire banking industry. But with this explosion of digitisation, traditional banks are feeling constrained by their legacy core systems as their new generation competitors are fast adopting technology and innovating to seamlessly adapt to evolving customer expectations. If traditional banks want to be successful and stay relevant, they will need to adapt in order to meet customer expectations.

The move to needs-based banking

The digital era has set the benchmark on contextual offers and product recommendations meaning banks have no choice but to work towards the benchmark. Understanding the customers’ needs more objectively has become critical for banks as they develop new products. The customer segments range from baby boomers to GenZ and they are all digitally aware to a varied degree, therefore, servicing this segment and gearing up for the growing GenZ customer base requires strategic planning in any digital transformation journey. The question then becomes, how can banks adapt their complex legacy systems for a new generation of clients without changing the core system?

Open Banking regulations such as PSD2 in Europe, and in other advanced markets have fundamentally disrupted banking by requiring banks to open their customer data and payments infrastructure to third parties, forcing them to collaborate in order to provide better value and transparency to customers. In other words, traditional banks’ most valuable asset, customer data, is now available for all to see. Banks will no longer only be competing against each other, but with everyone offering financial services, including Big Tech companies such as Facebook, Apple and Google.

In light of these changes, customers are demanding total transparency with their banks, especially with how their data is being used. So, what can banks do to own the customer experience across the entire value chain?

They need to start by keeping the customer at the centre of their strategy. Be it designing relevant products in the open banking era or building new offers, it all relies on a deep understanding of the true needs of each customer. Designing the right experience to meet modern customer expectations is vital to ensure these newly designed products actually sell.

For instance, when a customer approaches a bank to ask about their mortgage product, they are already in the process of buying a home so it’s important for a bank to consider the whole home buying experience, rather than just the mortgage. They need to look at the other activities in the value chain like the fact that, the customer is going to need home insurance, home furnishings and much more. By understanding the full scope of customer needs, the financial product design becomes more holistic. The mortgage inquiry then happens to be just one part of that entire home buying experience.    

Adopting a digital core

Banks are putting all their efforts into unifying the customer journey and are altering all their channels to an omnichannel system. However, current banking systems lack the intelligence to identify the contextual intent of customer transactions. In order to bring added value to customers, it is important for banks to understand what consumers are trying to achieve via those interactions. Banks’ omnichannel strategies are still lacking in this basic intelligence whereas e-commerce and retail organisations have been using such techniques for years. Therefore, adopting a customer experience strategy cannot be a last-minute consideration.

Adding a digital core to a bank’s core competencies, allows those employees tasked with delighting customers to focus more on customer needs. Understanding the context behind banking transactions is perhaps the most fundamental competitive advantage banks have.  A deeper level of understanding about what customers really need and the ability to execute fast is the best way to keep them loyal.

With a powerful digital core, banks will not only be able to provide integrated services including both internal and external products but can take ownership of the complete customer relationship. Open banking has radically changed the scenario, giving rise to potential new partnerships and business opportunities for banks outside of their own financial products. And a digital core enables this and provides future proofing to adapt to changing business models driven by any external and internal demands e.g., regulation and operational improvements.

Does this mean, they have to rip and replace their existing legacy systems and put a new system in place? Not really, since this could end up being an extremely expensive as well as high risk approach, given today’s complex API driven ecosystem.  The ideal way forward would be to adopt a low risk, progressive legacy transformation model by hollowing out the core functionalities from your strained legacy systems and moving your customer experience strategy to a new middle layer, which is intelligent and immersive.  This middle layer of the new digital core system, would then separate the ever growing, omni channel customer interactions layer and the data layer, thereby helping accelerate the digital transformation journey, without really having to replace any functionally stable legacy core systems.   

Own your customer experience

The arrival of Big Tech companies in the financial services space has been a game-changer and has transformed the way businesses interact with customers. The sheer scale, hyper-personalisation and delivery options provided to customers has led to these platform-based companies to outpace their traditional counterparts. This disruption means customer expectations for flexible, customised products and services is at an all-time high and traditional bank must take inspiration from the big tech companies to retain customer loyalty.

Adopting a digital core provides an extremely low risk approach for banks by allowing them to accelerate their digital transformation journey in this direction.

At present, the situation is varied across the entire banking spectrum – from challenger banks leveraging new technology to those struggling to grasp the change. But whatever stage a bank is at, the ultimate goal should be to become true customer owners by transitioning from a product-based to an agile, customer-first organisation, creating need-based personalised experiences.