New Opportunities for Retail Banks

In conversation with Ken Cregan, National Council Member at the Fintech and Payments Association Ireland and Head of Innovation at Unum, Adrian explores the trends impacting retail banks and the opportunities to leverage their brand, customer base and data to compete with digital-first fintech organisations.

Retail banks are under growing pressure to move away from their traditional one-size fits all approaches to keep pace with evolving customer expectations. Traditionally, legacy infrastructures have seen them struggle to cater to modern consumer requirements, such as unbundled services and personalised digital experiences. But now, as fintech organisations are capitalising on the Open Banking regulation changes and leveraging APIs to build digitally-driven, customer-centric financial services without the need for an existing customer base, banks are finding other ways to deliver value to customers.

To discuss these opportunities for retail banks, I recently sat down (virtually), with Ken Cregan, Head of Innovation at Unum. As a National Council Member at the Fintech and Payments Association Ireland (FPAI), Ken joins us with a wealth of expertise on how retail banks can capitalise on their assets in this new, API-driven world.

What widespread changes have you seen across industries that are impacting retail banks?

Ken: “I would have to say customer experience – it’s everything in our always-on economy. Often, the most recent exceptional experience a customer has defines their expectations for everything else. That’s created a really high bar and is driving a much more customer-centric approach to banking. Banks are reacting and becoming increasingly focused on creating strong customer experiences, tailored to specific customer needs. This is triggering an arms race around a great customer experience, and in this race, banks have a key asset – data.  They have the ability to create exceptional insights for their customers, and on how they want to interact with their money.”

This remains a crucial point and we must consider how for retail banks, these changes can’t just happen overnight. To deliver real-time interactions – the gold standard for today’s digitally-enabled consumer experiences – banks need to re-architect their IT infrastructures to interconnect more closely with people, locations, clouds and data. As and when the whole crowd begins to follow suit, the question banks must then answer is how to stand out in an increasingly crowded market. This might be achieved by prioritising IoT accessibility and delivering services through new channels and devices or a fresh perspective on each demographic’s priority, using data.

On the subject of data, what more do you think retail banks can do with the vast amounts at their disposal?

Ken: “While data can revolutionise the banking experience as we know it for the consumer, for the retail bank itself, it is key to the development of new platforms and operating models. Crucially it will enable digital engagement that will be accelerated to support omni-channel propositions. This will only grow in importance as organisations introduce elements like AI and advanced analytics that will demand large volumes of data.”

This represents an exciting opportunity, but for banks to embrace these omni-channel propositions it requires a highly distributed network – with edge architecture crucial to capturing and analysing large volumes of data in real time. This in turn will enable faster analysis, the optimisation of network costs and improved application performance. So, as omni-channel propositions become easier to facilitate, what will this mean for collaboration, both with fintechs and beyond?

Ken: “Fintechs are incredibly popular in Ireland, but most people also still pay their salary into a bank account, and established banks are still regarded safe and secure. However now, Open Banking has provided an opportunity for banks to take on new roles, and to work together with fintechs, other banks and non-banks around the provision of services, helping to deliver a better proposition to customers as a result. For example, one party could provide the payments side, one the customer service element and one the aggregation of all the accounts. This will allow banks to leverage their brand and existing customer bases.”

To put this into practice, banks will need to look at the design of their IT infrastructure to enable collaboration that delivers on the promise of APIs and the Open Banking initiative. To drive an effective collaboration model, banks should focus on three key areas: deploying cross-border services, adopting deep learning algorithms for data analysis and delivering a frictionless customer experience. But these advanced technologies are not easy to get right, and only by bringing the computational power closer to the edge and the devices themselves will banks be able to deliver on the promise and the optimism surrounding industry-wide collaboration. Ken, how do you think will this impact the traditional retail banking model?

Ken: “Well, banks are already beginning to work with fintechs to create platforms that allow collaboration with other partners, provide services to support fintech propositions and create their own innovation hubs. This is presenting a huge opportunity for change to the retail banking model that will allow banks to leverage the following:

• A direct model, where the fintech player pays to use the bank’s API per transaction, and they maintain separate ownership of the proposition
• An integrated model, where the fintech’s proposition is bundled into the banks. This would require a percentage share of revenue between the two parties.
• An indirect model, where both parties collaborate to generate new sales, develop a proposition and enhance the relationship with the customer. Good data management and governance is essential here, bearing in mind GDPR requirements.”

Clearly, the opportunity for retail banks here is huge. For these models to be effective, banks must look to best-in-class collaboration applications, such as an Interconnection Orientated Architecture (IOA) on Platform Equinix. These are designed to help an increasingly dispersed, mobile-first, ever-expanding global user base. Adopting IOA and deploying services at the edge can realise return on investment of up to 328% and reduce latency by 30%. What’s more, by operating at the edge, time to market can actually be reduced, meaning that banks can bring these experiences to their customers quicker than ever before. So, what does that mean for the future?

Ken: “Over the next few years we’re going to start to see more disaggregation as organisations start to specialise. There will be work to do in aggregating all of these disparate services into seamless experiences for the customer. We’ll see front-end aggregators bringing together propositions for multiple banks and fintech suppliers to you as a customer. You will be able to access services on mobile, online and via wearable solutions. I expect to see integrated bank and fintech propositions playing into non-banks like utilities and such, because these organisations have a billing and payment requirement that bank and fintech propositions could manage.”

I’d have to agree there. As Ken’s touched on, it’s going to be an exciting few years in the financial services space as retail banks look to evolve the way they serve their customers. But the legacy infrastructures existing within many of the traditional institutions will need completely revamping to ensure future success. This is all part of the steps organisations will need to take to operate closer to where consumers use these services, at the digital edge. This will only increase in importance as IoT really takes off. While connected cars and speakers may seem a million miles away from banking right now, these are fundamentally changing the way consumers expect to engage with all services, banking included. To avoid being left behind and to ensure that financial service delivery keeps up with modern standards, banks will need to ensure that their IT is ready, and able, to move with the times.

The pace has changed for those in financial services, as customers continue to expect more personalised and tailored solutions. This is putting increased pressure on retail banks and fintechs alike, as the need to integrate different customers, partners, employees and ecosystems grows. Download the Finextra-Equinix whitepaper “The Irish Banking Ecosystem, Interconnection and the Speed of Change” to learn how Irish banks must embrace new technologies and business models to keep pace and to stay ahead of energetic new entrants.