Challenger banks have gained a foothold in the banking market and their market penetration is increasing. 62% of customers currently use at least one financial product from non-traditional firms with this number rising to 67% in the Generation Y and tech savvy segments.
Exclusivity is key
These statistics don’t show the whole story however. The number of accounts opened might look impressive, but this doesn’t mean that customers are doing the majority of their banking with these fintech firms.
In fact, they all share the vast majority of their customer base with other traditional banks. This begs the question as to whether their customer base are really banking with them or merely using them to close a gap in their main bank’s offering.
This may indicate one of two things, either that customers are loyal to traditional banks and want to stay with a trusted brand, or that the offering from the challengers isn’t differentiated enough yet to encourage what is now a very easy switch when it comes to moving a customer’s current account.
The data differentiator
Traditional banks currently have an ace up their sleeve and that’s the sheer volume of transactional data they hold. Challengers can’t currently match this and that presents a huge competitive advantage to the incumbent giants.
This advantage will be progressively undermined by open banking, but if traditional banks act now to enrich their data with external sources and tap into advanced analytics capabilities, they can gain deeper customer insight and outperform challengers in terms of personalisation.
Timing is critical to making these advantages count when it comes to winning and securing market share. These sorts of strategic decisions can’t sit on the table long before they become a moot point. In a survey of 4,000+ UK banking customers, 63% of customers with a current account were willing to share financial information with a competing bank, FinTech company or aggregator in pursuit of a better offer.
These sort of moves call for a level of agility not typically found in the larger financial institutions that currently dominate the market. In order to move fast, these traditional firms are going to have to look to fintech partners for digital banking platforms that they can quickly build from, so as to avoid losing further ground to the challengers.
Digital banking platforms enable banks to future proof their offering
Digital banking platforms will provide adopting banks with a number of critical opportunities to differentiate their offering and keep pace with their more mobile challenger rivals. These platforms provide the quickest and easiest way to kick-start the digital transformation process. A digital banking platform is an open door to becoming a truly digital native, data-driven, customer-centric and ecosystem ready bank.
1. Banks can tap into digital platforms to create online journeys that their customers will love
Ease of use is the primary factor to both choosing and staying with a bank. This makes the smoothing and optimisation of key customer journeys a critical part of a bank’s ability to create and sustain market share. A digital banking platform will enable a bank to move quickly when redesigning, testing and optimising these pathways to deliver the best possible digital customer experience.
2. Digital banking platforms provide speed and flexibility so traditional firms can innovate as fast as fintechs
Developing new systems from scratch is an expensive and time consuming endeavour for any business. This aside, traditional banks are forced out of their comfort zone as they do so, leaving them open to costly mistakes and further delays to deploying their innovations. Using a digital banking platform provides the opportunity to minimise risk by leveraging existing technology to provide a springboard for innovation. This also means that new systems and offerings can be brought to market far faster.
3. A digital platform with next-gen engagement capabilities can reinvent the bank-customer relationship
Digital banking platforms that enable a deeper and more intelligent mode of engagement between the customer and their chosen bank can not only enhance the loyalty to the brand but also generate new revenue streams in their own right. By replacing or supplementing the provision of staff to customer engagement, the digital banking platform creates new opportunities for the customer to engage with different products, whilst freeing up customer facing teams to focus on relationship building rather than administrative tasks.
4. A data-driven digital platform makes hyper-personalised banking possible
Part of the reason such a significant emphasis has always been placed on customer facing teams is that this was previously the primary way of delivering a truly personalised banking experience. A data-driven digital investment platform can enable this same level of intensely personalised experience, without needing to have another human involved in the process. A good platform will offer traditional banks to use the advantage they currently have over the challengers, putting the huge lakes of transactional data they hold to work in delivering a far more targeted and meaningful customer experience.
5. Digital banking platforms are faster, leaner and cheaper to run
IT spend represents a significant proportion of a bank’s overall budget and rightly so, with technology being a major battleground when it comes to winning market share. Digital banking platforms represent a smarter use of that spend than many other avenues as they offer a quicker route to deploying innovations, require less investment of internal resources and are much less expensive to continue to operate than systems that have been developed from the ground up within a bank.
6. Digital banking platforms can eliminate concerns about legacy systems
When a traditional bank deploys a digital banking platform, they remove much of the burden of continual innovation from their shoulders and place it with fintechs who are much better placed to carry it. Fintech firms have innovation in their DNA and deliberately design products in such a way that they are easier to evolve over time to keep up with the rapid pace of change in the technology space.
7. Digital platforms can help banks unlock the ecosystem opportunity
One of the most significant challenges faced by traditional banks embarking on digital transformation programmes is trying to ensure that all the moving parts within their fledgling digital ecosystem talk to each other and to legacy systems that may well not have been built with that in mind. By taking the platform approach, banks ensure that they don’t just capitalise on the opportunities offered by digital enhancements in specific areas, but rather that they are able to build a cohesive and interconnected ecosystem that will better serve their customer, their organisation and their commercial objectives.
Ready to explore some of the strategic and competitive advantages a digital banking platform could offer to your organisation? Contact us at firstname.lastname@example.org.