The banking industry today is one of the most complex ones to operate in. There are several challenges that need to be addressed, for anyone planning an entry into the industry. However, the right technology platform and capabilities coupled with an accelerated launch can help a new entrant not just overcome challenges, but drive growth and success.
In several markets around the world, new banking licenses or charters which were scarce until a few years, are now easier to obtain. Consequently, there is an ever increasing number of new banks that have been launched or in various stages of planning/roll-out. These banks are often classified by several names such as challenger banks, neo banks, and digital/mobile-only banks.
Firms with a hard-won license to launch a new bank, however, face several industry challenges, which if addressed rightly, can ensure success:
- Saturated Market: Most markets where new banking licenses have been issued are highly saturated. Retail banking customer segments are also deeply entrenched with incumbent banks for their primary financial service requirements. To drive business and growth in such a market, it is essential for a new bank to offer innovation and new value to demanding customers as well as target untapped markets.
- Intense Competition: Most markets are also highly competitive with a multitude of players which include traditional incumbent banks with a deep market presence and reach, pure digital subsidiaries of incumbent banks, and nimble FinTechs and startups. Therefore it is essential for a new bank to target a rapid go-to-market with a minimum viable portfolio of products, services, and channels. The agility and flexibility to tweak business models and scale operations are also essential for success.
- Limited Licenses: New licenses in certain markets are issued with limits or restrictions. For example, they mandate a focus on certain lines of business such as payments or prioritize certain areas like lending to small/medium enterprises. Hence, the ability to quickly establish partnerships can help overcome any limits and provides the necessary agility for a new bank to offer customers additional services, if required.
With technology so intrinsic to banking, the right platform and solution landscape is one of the most important factors that will enable a new bank to not just address them, but take advantage of these challenges and drive growth and success. It is therefore essential for a new bank to invest in a core banking platform with the requisite capabilities that drive:
- Rapid Roll Out: The right core banking platform can help a new bank rapidly launch operations with minimal delays while minimizing risks and costs. A complete, packaged, pre-configured core banking platform enables a rapid roll out. Dedicated clusters enable out-of-the-box market and regulatory compliance. Accelerator packs with preset configurations and industrialized processes help quicken deployment. Ready-to-use products like deposits, lending, payments, etc. can help speed up go-to-market with a minimum viable portfolio.
- Efficient Collaboration: Partnerships and connected ecosystems, where multiple firms such as banks, FinTechs and, other digital firms share data and build innovative services, are fast becoming a reality. Partnering with third-party firms and participating in ecosystems can also help a new bank explore untapped customer touch points and value chains and allows it to offer a more comprehensive portfolio of services. Hence, the ability to build, manage, offer and consume data and APIs securely, transparently and efficiently is essential for any bank today. Scaling business lines and tapping new business and revenue models also become more efficient. Consequently, a core banking platform that supports global standards and protocols which enable quick, seamless and secure integration with systems and platforms of partner firms and networks is essential to a new bank.
- Phygital Distribution: While the choice of distribution channels at several new banks today is skewed towards digital or even just mobile in some cases, it is important for a new bank to have the flexibility to leverage physical channels when needed. Physical channels can help drive business growth from un-tapped markets such as under-banked and un-banked customer segments as well as augment engagements for already-banked customer segments. A core banking platform that enables an omnichannel approach which mixes digital and physical channels seamlessly into a ‘phygital’ distribution network is necessary for a new bank to be able to provide comprehensive engagement to its customer segments.
- Embedded Intelligence: The ability to generate better insights and predictions can help a new bank establish immediate competitive advantages. A core banking platform with embedded Artificial Intelligence and Machine Learning capabilities co-located with data, can industrialize the generation of insights at scale with out-of-the-box business use cases and drive next-generation decisioning. Such capabilities can help a new bank efficiently offer new levels of innovative customer engagement and value.
- Specialized Micro-verticals: The capability to explore new business lines is also a key requirement. A core banking platform with out-of-the-box functionality for micro-finance, Islamic banking or capabilities that allow the roll out low-cost banking services, can help a new bank target up-tapped markets quickly and profitably.
- Scalability and Flexibility: The ability to scale operations quickly and cost-effectively is essential for any bank today. A new bank must invest in a core banking platform that provides the flexibility of multi-tenant and multiple operational models to help it cater to regional regulations, market and business requirements as well as customer needs. Additionally, a core banking platform that ensures superior, reliable and continuous performance is also an essential requirement.
Selecting the right core banking platform is key to ensuring a new bank’s success. A modern core banking platform with the requisite capabilities is essential for a new bank to address and leverage key challenges and succeed in a complex and rapidly evolving industry.
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.