The world today is witnessing an unprecedented proliferation of digital technologies and connectivity. As the financial services industry evolves amidst this disruption, banks continue to face growing competition not just from peers but also from digital competitors who are leveraging their digital channels and networks to offer competing financial services or act as digital intermediaries in the financial services value chain. Digital savvy customers too increasingly expect innovative services and engaging experiences, anywhere, anytime.
To address this disruption, protect their customer relationships and business and to stay competitive, incumbent banks must double down on transforming their systems so that they can leverage digital technologies and a connected world to drive better services, experiences and value for their customers. Understandably, many large global banks have invested heavily in acquiring digital capabilities and driving digital transformation of their systems and operations. Additionally, many have also launched investment funds or have set up startup accelerators and incubators or have purchased stakes in FinTechs or digital technology firms to gain access to the latest digital technologies. Several of these approaches often require significantly large budgets to execute.
So, what are the options for mid-size banks?
In actuality, digital transformation does not necessarily have to be prohibitively expensive, especially in the case of mid-size or regional banks. Unlike their large global counterparts, these banks have certain strengths when compared to larger banks and even FinTechs that they can leverage. They typically have tighter customer relationships across the retail, small business, and corporate segments. They have a significantly more comprehensive portfolio of services when compared to most digital firms. These banks also have smaller and less complex operations and technology environments. However, these banks also have certain weaknesses. Apart from smaller budgets, mid-size banks also have a limited capacity to take on the risk of large digital transformations.
Taking into account these strengths and weaknesses, it is imperative for mid-size banks to drive efficient and effective digital transformation to stay competitive and thrive in a rapidly evolving financial services industry and a digital and connected world. To achieve digital transformation efficiently and effectively, it is imperative for mid-size banks to focus on the following:
A modern solution landscape - key to efficient and effective digital transformation
In a technology-driven industry and a digital and connected world, investing in leading-edge core solutions and a modern technology landscape is one of, if not the most important factor that will enable a mid-size bank to not just stay relevant but compete and thrive. A modern, interoperable and scalable solution landscape can catapult mid-size banks to the fore front of digital innovation by helping them efficiently and effectively address the focus areas. Here’s how:
- Customers: A modern pre-integrated and pre-configured solution with comprehensive capabilities across all banking functions that is designed to work off-the-shelf can help mid-size banks rapidly develop new products and services, bundle and price them attractively and deliver them seamlessly across multiple digital channels and touch points. Such a solution can also provide such a bank multi-dimensional views of its deep and proprietary customer data to help understand the needs and wants of each of its customers as individuals, instead of broad segments and offer them personalized experiences that are highly contextual and relevant in their lifecycle. These capabilities can help mid-size banks deliver innovative products, services, and experiences and augment their tight customer relationships, acquire new customers and target new segments and out-compete traditional and digital competitors.
- Agility: A solution with a robust technical architecture that can support multiple digital strategies can help mid-size banks better plan and implement their transformation according to their strategic needs instead of being forced to adopt a one size fits all or a big bang approach. A scalable and flexible architecture and technology landscape that is extensible can also provide the agility to quickly respond to changing business requirements and market dynamics. Additionally, a solution that allows for seamless integration with pre-existing architectures can help mid-size banks progressively scale up digital initiatives. Also, a solution with a responsive user interface coupled with intelligent information retrieval and contextual clarity can help a mid-size bank infuse the required operational agility and business mobility to accelerate innovation, quicken time-to-market and better compete with traditional and digital competitors
- Costs: A solution that is componentized can provide mid-size banks the flexibility to selectively focus on specific lines of businesses and expand progressively to other lines of businesses as and when required in a cost-effective manner. Features like straight through processing and high fidelity information exchange can also help drive process optimization and cost efficiencies. Additionally, a solution that uses modern technologies like machine learning to drive intelligent decision-making can help mid-size banks better optimize processes, lower operational costs and establish more competitive cost structures and allow for greater savings to be funneled back to drive more investment in digital initiatives.
- Collaboration: Digital disruption is now entering a new phase with the evolution of connected ecosystems where multiple firms such as FinTechs, incumbent banks and, other digital firms share data and build innovative services to bring unprecedented value to the customer. These ecosystems are orchestrated across the financial and related value chains like e-commerce etc. These ecosystems can offer significant benefits for smaller banks through collaborations with partner firms in mutually beneficial relationships. Mid-size banks can offer their more comprehensive service portfolios, deep customer relationships and, data to partners in return for access to the latest technologies. They can also gain access to much larger networks and customer touch points that span different value chains where they can offer relevant financial services and scale their business efficiently. A modern, interoperable and scalable solution that supports quick, seamless and secure integration with the systems and platforms of partner firms and networks can help mid-size banks quickly and efficiently integrate with and profit from connected ecosystems. Additionally, a solution landscape that supports Open Banking, complies with global standards and protocols can enable a mid-size bank to offer and consume data and APIs securely, transparently and efficiently thereby helping it define the ecosystems it chooses to operate in and remain in control accordingly.
My colleague Avinash Swamy and I co-authored this blog. We would love to hear your views. We are reachable at tushar dot chitra at Oracle dot com and avinash dot swamy at Oracle dot com