Not only the effects of digitization are driving the further development of the entire financial industry, but also trends such as multibanking, PSD2, ecosystems and big data. In addition, banks must find an answer to how their IT infrastructure and their core processes will be able to withstand the digital challenges, the constantly growing customer requirements, and an unrelenting cost pressure in the future.
Banking is breaking away from banks: Welcome PSD2 and Open Banking!
Progressive digitization is fundamentally changing banks. It is increasingly a matter of consistently exploiting the opportunities of the digital world while keeping an eye on customer orientation. The current market situation is characterized by new competitors such as FinTechs and internet banks (NEO Banking).
Without customer centricity and an appealing customer experience, nothing will work in the future. Customer needs are changing rapidly and new offers are increasing: it has never been easier for customers to change their own house bank than it is today. In particular, the PSD2 regulation of the European Banking Authority (EBA) has contributed greatly to this. It enables not only banks but basically any company to offer payment services to their customers. The directive therefore introduces a new banking era and drives digitization and the spread of open banking.
Open Banking: What are the opportunities and challenges?
With PSD2, there has been a rapid increase in competition in the banking industry. New market entrants, so-called fintechs, quickly recognized the value of PSD2 and the opportunities of Open Banking.
Excursion Open Banking:
Open Banking (also 'API Banking') refers to banks opening up and sharing their data and services. Through technical interfaces, so-called APIs (Application Programming Interface), the use of data as well as operations and transactions on bank accounts become possible, which are triggered by third parties.
The PSD2 and Open Banking have significantly changed the way in which, for example, customer access, account and transaction data and sales interfaces are handled. A radical change has been initiated, which is forcing previously established banking business models out of the market. New, easy-to-use and user-friendly applications with a variety of innovative options have shown users what is possible. The banking app of the house bank has long since ceased to be a source of enthusiasm and is gradually disappearing from customers' smartphones.
A bank must therefore not lose sight of two essential points:
- It has never been so easy for customers to switch their own bank and
- the need for innovation has never been so great in order to meet customers' requirements.
Banking of the future belongs to companies that put the customer at the center of their development, act in an agile and data-driven manner, and offer customers a positive and comprehensive experience. New digital services and products are in demand - so get active: the interlinking of banks with third-party providers opens up a wide range of opportunities both in the optimization and expansion of existing business models:
Optimizing the existing business model:
By accessing and using account and transaction data, a bank owns some of the most valuable user data. From this, changing life situations, individual needs and specific wishes can be read. Interfacing with third-party providers enables the existing data to be enriched with additional data, including data from outside the industry, such as detailed purchase histories and current areas of interest. The more information a user has available, the more accurately an individual customer profile can be created. This means that a user's own products can be customized and offered at the right time.
In addition, existing processes can be accelerated and automated. Manual data entry is a tedious and time-consuming task for both employees and customers. Dynamic data exchange with third-party providers enables the automation of such processes. Reduction of costs and input errors as well as an increase in customer satisfaction are significant advantages that go hand in hand with this.
Extending the existing business model:
Open Banking goes far beyond optimizing the existing business model. It has never been easier to grow your customer base so quickly and easily. Share your own customer base and access someone else's in return. Reposition yourself at the center of the action by offering new, even non-bank services and third-party products through your front end, alongside your own service offering. Use the new cross-industry cooperations to develop new digital products and services that you would not be able to implement on your own.
The potential of Open Banking is immense. In order for banks to maintain their relevance in the increasingly digital environment, they must become active now and reposition themselves in the area of Open Banking. However, many banks often lack an effective and clear implementation strategy for this. In addition to the necessary adjustments to the IT landscape, organizational and cultural changes must also be made.
What challenges does banking IT face?
Nothing works without it: a state-of-the-art core banking system. It is the basis for successful digital transformation so that banks can align themselves with the increasing digital consumer culture. Outdated software infrastructures (legacy systems) represent one of the biggest digital obstacles, making it almost impossible for banks to adapt to a rapidly growing competitive environment and to allow and shape innovation.
"Never change a running system": For a long time, the strategy of the banking industry was based on this motto. In the meantime, banks have recognized that this approach has no long-term future. Due to numerous system expansions in the past, the complexity of the IT landscape in the banking industry has often grown to such an extent that it is almost impossible to keep track of it. This has long since ceased to be efficient and flexible. Missing interfaces, a multitude of different, individual solutions and a lack of know-how about the outdated systems are just some of the problems that stand in the way of dynamic, digital growth. In order for the IT landscape to meet the current requirements of the banking industry, old systems must be replaced by new systems, for example.
When implementing a new core banking system, important points must be taken into account: First of all, sustainable structures must be created, and new requirements must be able to be implemented flexibly so that old processes can be avoided. Individual solutions? Better not: Standardization and automation are needed to ensure the necessary flexibility, scalability and efficiency.
Replacing core banking systems is the first step toward opening up and networking the bank with third-party providers. In view of growing customer requirements and new technological possibilities such as Big Data, Machine Learning, Blockchain, Robotic Process Automation and Natural Language Processing, a multitude of new opportunities will subsequently arise. In order to exploit these, resources are required that must first be released.
How is cost pressure forcing banks to further increase efficiency?
The day-to-day business of quite a few banks is characterized by an expandable degree of standardization and automation, which harbors the risk of high error rates, high costs and an overload of employees. In addition, duplicate work is created, which may result in high post-processing costs, which in turn are reflected in the costs and the overload of the employees. Another problem is the often very large proportion of human interaction required for repetitive activities. By automating processes, not only can this proportion be greatly reduced, but also the error rate. The resources thus freed up can then be used for new strategic tasks.
In this context, a bank must also ask itself the following question: Is it cheaper and possibly even safer to outsource processes? It is often more economical to outsource processes to a third-party provider, who can work much more efficiently with his expertise and IT systems. End customers can also benefit from outsourcing certain processes: The more efficient processes of the third-party provider usually reduce the waiting and processing times per customer, which means that in addition to the cost-saving potential, an increase in customer satisfaction can also be achieved.
How can we support you in the field of banking?
From IT transformation to operations management and sales management, we can help you analyze and optimize existing processes, systems and structures. For example, we can help you replace your core banking system and design new sales systems. We also assist you in developing your own digital ecosystem and in developing new products and services.
