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- Nick Jackson, Vice President Solution Consulting, Oracle EMEA and APAC
Disruptive technology continues to be both a challenge and opportunity, helping for example established banks meet new realities – and powering new competitors, the fintechs, which are unencumbered by legacy systems and practices. In fact, technology innovation and customer adoption is increasing faster than IT capabilities can keep up. What is happening to the banking industry can be applied to any business.
Take credit-card processor Square. It launched in 2009, but in 2017 had already swiped $65.3 billion-worth of transactions (a growth rate of 32% year on year) from traditional card processors with a simple product that works on any mobile device.
As fintechs drive down prices, margins shrink. Traditional full-service banks can expect 20 percent of their customers to drive 150 percent of their net income; the other 80 percent either break even or lose money on every transaction. Something has to change.
Traditionally, banks have tended to operate from an internal perspective, by lines of business. But today’s customers have been trained by e-commerce and apps to expect fast, personalized service. In the past, “banker’s hours” existed because people didn’t have a choice. Today, they do – and they’re choosing 24/7, not 10am to 3pm.
Crucially, each customer needs multiple products and services – from mortgages to business loans and beyond. A line-of-business approach helps the bank assign revenue and responsibility – but limits the visibility required to meet each customer’s whole needs.
The IT systems underpinning these lines of business are also siloed. This cripples a bank’s ability to exploit one of its most valuable advantages over fintechs: data. The incumbent banks have lots of it – but it’s rarely used in ways that would beat out competitors.
Banking Transformation Centers on Cloud
There is a solution. A connected suite of cloud systems puts customer data into one comprehensive data set. Algorithms and machine learning can then identify broad-based customer needs – even as line-of-business leaders maintain control. Cloud also simplifies adoption of new technologies – such as chatbots – that fintechs use to woo customers.
It also reduces IT costs and simplifies deployment of digital services. Regular upgrades are completed automatically, reducing disruption. Expensive IT specialists and on-site licences become the exceptions. Cloud streamlines reporting – which optimizes costs and decision-making – freeing up hours for bankers’ to spend on strategy and growth.
By reducing costs and creating new approaches to market, banks can leverage their existing strengths: capital, and the ability to navigate ever-changing regulations. The fintechs are disruptive – but cloud levels the playing field and allows traditional banks to play to these strengths, while adding new products and services.