Banks Need to Accelerate End-to-End Digitization and Open Banking to Stay Ahead of Non-Banking Challengers

In this third article of this series, we discuss the need for banks to accelerate their end-to-end digitization and open banking efforts to stay ahead of their non-banking challengers.

While there have been great strides in cloud adoption and digitalization in banking, there are still many banks that still need to embrace modular structures and external services. During the COVID-19 crisis, many banks sprung into action with their digitization efforts so that their customers could handle almost all of their banking needs from the comfort and safety of their homes.

Today, they may have some services in the cloud like loan applications and opening accounts, but have yet to realize the full benefits of digitization in banking.

In this third article, we discuss why banks need to finish what they have started (or get started if they have yet to begin their digitization journeys) by accelerating their end-to-end digitization efforts to stay ahead of non-banking challengers.

Accelerating Digitization is Vital to the Future of Banking

One of the greatest risks facing banks around the world is not the external disruption to traditional banking norms taking place from outsiders. Instead, it is their reluctance to move forward with shaking up long standing core banking practices and norms. Their digitization banking efforts have yet to deliver the transformation they need to future-proof themselves and remain reliant against their non-banking challengers. If there is anything to be learned from the unprecedented challenges presented to the banking sector by the COVID-19 pandemic, it is that the need for digitization is an imperative for banking to help them respond to crises, while creating a roadmap to their long-term success.

What Does a Winning Digitization Banking Strategy Look Like?

Boston Consulting Group (BCG), a leading business strategist in total transformation, “An open-banking ecosystem creates tremendous opportunities for improving the overall customer experience.” But many retail banks find themselves dragging their feet because they get mired down in the technical details instead of embracing the opportunities that await with new digitization banking strategies.

Here are three winning digitization strategies that BCG suggests that are making an impact on the banking sector by providing a path for long-term growth:

Strategy #1. Reinforcing the Core

Doing a good job of integrating third-party offerings can strengthen the core bank and reward it with market share coming from competitors who are not as responsive to their customers’ needs and wants. These types of integrations require little technical investment while allowing banks to ramp up their new services faster than having to create in-house applications from scratch. Some of the most promising integrations include:

• Personalized savings
• Loyalty programs and personalized offers
• Personal financial-management tools
• Account-to-account mobile POS payment tools
• Instant consumer loans

Two examples of digitization in banking for this strategy include Santander’s partnership with Kabbage to offer customers seamless small-business loan origination while ABN AMRO added online budgeting tools and solutions for personal financial management by collaboration with Tink.

Strategy #2. Creating a New Distribution Channel

In the battle to maintain market share against new less-traditional entrants to banking services, a smart strategy is creating new distribution channels through strategic partnerships. This allows banks to grow in areas where they may not have expertise or have regulations preventing them from doing on their own. One such example of digitization in banking using this strategy is Wells Fargo’s dozens of APIs that allow customers to access and control what account information they want to share with the bank’s third-party networks, such as account-software providers or other financial service providers.

Strategy #3. Launching Innovative Ventures

Through APIs and third-party relationships, existing banks can create disruptive new business models that are separate from their core business. This strategy could include launching new businesses or independent challenger banks geared to specific products or vertical markets. For example, Santander gave Openbank, its original challenger bank, a new cloud-based banking backbone as a means of distributing banking services. ING launched several businesses, including Payconiq, Cobase and Yolt as independent ventures.

Why Are Some Banks Still Hesitant to Fully Digitize Their Services?

Despite the success stories of the impact of digitization on the banking sector, the statistics discussed earlier in this article and in the previous article “What Drives Banks to Cloud Adoption and Where Are We Now – Overview” show that many banks remain hesitant to fully digitize their services. Among what they view as one of the disadvantages of digitization in banking are concerns about loss of control over security-sensitive operations and of course, compliance with regulations, such as PCI standards.

What these latecomers to banking digitization do not fully realize is that many of their concerns over security between moving to the cloud and working with third parties are unfounded. The major cloud providers make big investments in keeping data secure. But even with cloud security, banks can rest assured that their data and that of their customers is further protected by using services such as MYHSM Payment HSM as a service.

Explore and validate MYHSM Payment HSM as a Service via the Test option with no lock ins and low monthly payments.

Blog post by Dawn Turner and Dr. Ulrich Scholten