Banking Circle’s three-part white paper, Ready For The Rebuild? Rethinking The Value Of Digital Infrastructure, showed that the challenges banking executives cited as their most pressing concerns during the pandemic were the same as those before it struck… only now they are well on the way to resolving them.
“Banks are no longer playing Jenga with their internal systems – where one new block or one more change could bring the whole edifice crashing down… worries about the chokehold of legacy systems – and the mindset that accompanies them – are passing.”
That upbeat appraisal of how the limitations of legacy have been largely ‘conquered’ by institutional banks was one of the standout conclusions of the first in a new series of reports from infrastructure provider Banking Circle. It commissioned Magna Carta Communications to go to the industry just as COVID-19 was declared a pandemic, to assess how well banks’ digital investment over the past few years had stood up to its first real shock – and whether the events of 2020 had changed their digital trajectory going forward.
It reported a ‘renewed sense of confidence’ among incumbents. While that may come as a surprise, Banking Circle says it reflects a fundamental change in their business practices, culture and, most of all, technology. Particularly the adoption of Cloud-enabled systems, platform services – notably those supporting a more flexible infrastructure – and a willingness to outsource.
Resilience and flexibility are front of mind, it said, with many banks believing that now they, rather than challengers and disruptors, are best placed to move successfully into an economically uncertain future. Just five per cent of retail banks it spoke to said they were concerned about the threat of recession, compared to 31 per cent of fintechs and 41 per cent of payment services providers sampled across Benelux, Denmark, France, Germany and the UK.
If the report’s fanfare that ‘the banks are back in town‘ is correct, maybe it’s because they’ve heeded the advice of providers such as Elliott Limb, chief customer officer for Cloud-native banking and lending software-as-a-service provider, Mambu, who says: “Anybody who’s trying to build s omething that isn’t ecosystem-led, open, and isn’t collaborating, I think they have a short shelf life.”
Limb adds: “Gone are the days where ‘collaboration’ just meant a bank demanded its customers pay a certain way and the technology vendor sold what the bank wanted. Now, we’re all working a lot closer. Composable and collaborative are absolutely fundamental to making this market work.”
Certainly, the Banking Circle white paper would suggest that these more digitally-confident banks are taking a less defensive approach to fintechs: far from trying to punch them out of the ring, the Goliaths are shaking digital Davids by the hand. Less than a third of financial institutions say they are concerned about the pace of technological change in banking and less than 20 per cent are worried about the competitive landscape. Maybe that’s because 90 per cent of retail and commercial banks, according to the survey, are now using customer data to determine demands.
“We have to acknowledge that we now have to share clients, not compete for them. It’s no longer an exclusive relationship with the bank. Come together, cooperate, and digitise as much as possible,” says Paul Le, who leads on data and platforms for Dutch multinational bank ING’s trade business.
That’s a pretty awesome statement; a ‘reset’, of banking’s cultural orthodoxy and the technology around which it is built. At its heart is a recognition that customer behaviour, encouraged by regulators and facilitated by data and digitisation, is changing dramatically. As with every other area of their digital lives, customers are looking for ease of use, new experiences and infinite choice in their financial services. Even if one bank alone could provide all three, securely, and remain profitable, it’s would be unlikely to achieve undying loyalty from an increasingly digitally nomadic customer base.
ING recognises that people don’t need banks, they need banking, and has set out to ‘find ways to empower people and businesses on their preferred platforms with a clear and easy experience – or become a platform business ourselves’. Meanwhile, BBVA has already planted a foot in both camps. It has its Open Platform in the US, allowing fintechs and others to plug into its services, and an API (application programming interface) Marketplace in Europe through which customers can access third-party provider products.
Georg Lúdvíksson, CEO and co-founder of white label digital banking solutions provider Meniga, points to the newly-minted partnership between Apple and Goldman Sachs in the US, to provide the Apple Card, as an example of how just such collaboration can deliver value to all parties. He describes the new consumer credit card partnership as creating an entirely new ‘found money’ ecosystem.
One of the most forceful arguments for adopting a Cloud-based architecture is that it frees up organisational space to focus fully on the customer, enabling the business to change, pivot and grow as users seek stronger, seamless digital journeys and personalised financial services. It also allows banks to better embrace innovation from outside – for the benefit of banks and customers alike. As banks take their place in an open ecosystem, that capacity becomes particularly relevant, as Ed Maslaveckas, CEO of Bud, which provides banks and others with data intelligence and fulfilment capabilities to create new personal financial management features, points out. He believes that ‘no single institution can offer all services to a customer’, and that a competitive market is the best way to deliver what they need.
“People look at open banking and think about aggregation but, in many ways, that’s the least disruptive part of it,” says Maslaveckas. “The value comes when you can understand someone’s financial data and help them to act on the insight.” As of early 2020, he says, a million people were connected to the open banking ecosystem and network traffic volumes doubled between November and December .
“On the supply side, 76 per cent of fintechs we are tracking have accessible APIs and 30 per cent already have full read, write, create, fulfil and transact APIs. Pretty much anything that a customer would want to do with their finances is available via API – so, the product catalogue is, or will soon be, extensive’.
While it may be true that challengers are, as one commentator puts it, still just a ‘fly on the backside’ of banking, and that the GAFAs (Google, Amazon, Facebook
and Apple) have no interest in becoming fully fledged banks themselves, most are nevertheless looking to them to, in effect, white label their financial packages for customers – as evidenced by Google’s tie-up this summer with eight US banks to facilitate digital checking and savings accounts for Google Pay users. If they are not exactly worried about the new entrants, banks should at least be figuring out a way to gain some value from partnering with them, given the fragmentation and disintermediation that’s already being seen in financial services.
Reflecting on his organisation’s attitude to development, Mark Buitenhek, global head of transaction services at ING, says: “We don’t allow the ‘not invented here’ syndrome. Instead of HQ saying ‘this is the way we do it’, we cherish what is different. We want to understand what is different. We keep our eyes wide open and we’re always open for change.”
If the insight in the Banking Circle white paper is correct, that is the spirit in which most of ING’s fellow banks are also entering the post-COVID era.