Retail banks must be team players
In team sports, collaboration plays a deciding role in success or failure. In retail banking, however, the consensus seems to be that collaboration will be its downfall.
Individual banks compete against one another on innovation that drives banking modernisation and heavily protect their intellectual property to ensure it never sees the light of day. But the fact is banks can’t compete on current accounts for example, only how they price their models and showcase the benefits to the customer.
Despite this, many banks believe this is still necessary to innovate from within to ensure survival against one another. In the future, where the only things that will be constant are open banking regulation and the importance of the customer’s experience, the industry must change its approach to modernisation.
Going it alone is costly
Modernisation is a costly business. According to research, the average big bank invests $4 billion on upgrading their systems and improving their services every year. Small banks, on the other hand, have next to no capital to spend on building new services once the cost of maintaining existing IT systems and dealing with operational expenses have been factored in.
For large banks, the majority of modernisation capital goes towards obvious areas such as R&D into disruptive services, as well as hiring staff with the skills capable of building them. It also goes into not-so-obvious aspects, like making sure new services are compliant with regulations and standards and launching them once developed. Product development and implementation can often take years, by which time the innovation cycle is likely to have moved on.
Additionally, innovation for the entire industry comes with huge cost and risk implications, even for the more established players. But when doing nothing is not an option, how can banks on both sides of the spectrum ensure they remain innovative and relevant?
This is where collaboration comes in. Partnering with the right organisations can help banks remove many of the risks associated with modernisation, innovate and develop solutions which will help them to adhere to the latest regulation and improve experiences for the customer.
The Banking Industry Architecture Network (BIAN) has been working for over a decade to develop a common standard for banking innovation. More recently this has resulted in the development of over 89 standardised API’s that can be applied across banking functions.
These API’s and their definitions help to reduce the complexity of building and delivering open banking capabilities, providing clear guidance on how to implement, innovative and intuitive digital services across both back-end and customer-facing functions. This means banks can react to the limitations of changing customer expectations rapidly, and with much less cost than having to develop the services from scratch.
Power in numbers
Many in the industry may question this collaborative approach for fear of surrendering their competitive edge. But with the costs of upgrading legacy systems and developing new technology, the benefits of working together as a team to develop best-in-class services far outweigh the cons. Ultimately, the industry must work together to set a standard and drive the future of the banking industry forward.
By Hans Tesselaar, executive director at the Banking Industry Architecture Network (BIAN)