Challenger banks have made serious waves in the industry over the past few years. They have brought forward an offering that is genuinely disruptive, because of the way they are run. Digital challenger banks operate more like tech companies than banks, from their processes to their tech stacks, they have more in common with consumer-tech companies than traditional, branch-focused banks. They have been designed for scale, efficiency, agility and as a result enjoy a much lower cost of operating.
"While they can copy our features, they cannot copy our cost base," Starling Bank said in a statement. "They have to contend with legacy technology, not to mention the massive costs of maintaining a branch network and the slowness to action that is inevitable with large bureaucracies."
Traditional banks know that tech will win the war
Incumbent banks are well aware that technology deployment and digital transformation with a customer focus are key to successfully retaining market share. Large banks spend billions on IT each year, with an average of 5% of total revenues being ploughed into the digital transformation race.
The issue is that the progress made doesn’t equate to the spend. The 1 trillion USD that traditional retail and commercial banks have invested globally over the past three years to transform their IT operations has not yet delivered the anticipated revenue growth and only half the global banks in Accenture’s 2019 report are making significant advancements in digital transformation.
“I know 50% of my digital transformation spend is wasted — I just don’t know which 50%,” said an anonymous CFO of a global bank in an Oliver Wyman report. Investors are inclined to agree, with the same report citing that 0% thought their bank had articulated a clear and credible plan for digital transformation and 38% being openly skeptical about the chance of success.
Digital banking platforms offer a ray of hope
Banks will need to deploy technology to become leaner, more efficient, more integrated organisations, and digital banking platforms can help them do it more quickly, cost effectively and efficiently than traditional tech infrastructure.
A digital investment platform also enables banks to perform internal optimisation across a number of areas. They digitise and automate business processes, automating operations and workflows for increased efficiency, improved CX and costs savings. When deployed effectively, RPA/AI can unleash a wave of productivity gains and can help reduce costs in front-, middle-, and back-office activities by as much as 30% to 40%, as well as changing how work itself is done.
Digital banking platforms also enable the integration of channels, linking them all through a central hub to provide a consistent customer experience. Customer data can be unified, extracted from various product and business unit silos and pooled to create a true 360 degree view of the customer.
Another major advantage offered by digital banking platforms is cost reduction. When banks shift from owning and updating their own systems to using cloud-native SaaS, the cost structure changes from Capex to Opex. There are no large upfront investments on infrastructure, pricing is flexible, costs are more predictable through fixed subscription, and there is additionally no risk of technology becoming obsolete and having to be replaced.
The final ace in the pack is speed of deployment. Because digital banking platforms sit on top of and integrate with existing bank systems, they can be deployed in weeks or months rather than years and then facilitate almost instant deployment of new products, services and customer journeys.
If your bank would like to explore whether a digital banking platform could help you make more from your digital transformation budget, we’d be very open to having that conversation with you. Please feel free to get in touch.