Covid-19 has changed many things, including the importance of digital transformation within banking. Anders la Cour, Co-Founder and Chief Executive Officer of Banking Circle, discusses the findings of the financial infrastructure provider’s latest research.
The latest industry research commissioned by Banking Circle was planned as an in-depth look at attitudes towards digitalisation among financial institutions. However, before the research and interviews could be undertaken by Magna Carta Communications, the world was plunged into uncertainty: global crisis, national lockdown, enforced homeworking and schooling, and looming worldwide recession. What would be the impact on the delivery of financial services?
The study switched gears, with additional questions included to record how businesses anticipated the pandemic would affect them over the coming months, and beyond into the post-pandemic landscape. Magna Carta spoke to senior executives at banks, fintechs, payment service providers (PSPs) and payment intermediaries in Europe and the UK, gaining a unique snapshot of business planning and confidence at this critical and historic time.
The research confirmed that banks were already changing their business practices, their culture and their technology even before the global pandemic caused more disruption than the industry has ever seen. The focus was already on creating more responsive and flexible businesses that centre customers’ requirements and experience.
The research, which took place in March and April 2020, looked at how attitudes to digital technology have changed, particularly with regards to the cloud and outsourced provision of commoditised banking services such as payments, and to what degree Covid-19 had accelerated the change.
Digital service was already the new norm, but it became the imperative almost overnight.
Some of the key findings:
- Just 5 per cent of retail banks are concerned about the inevitable Covid-induced recession, compared with 31 per cent of fintechs and 41 per cent of PSPs
- 58 per cent of financial institutions placed the impact of regulation among their top three challenges; 53 per cent included the implications of constantly evolving customer expectations
- Less than a third of financial institutions are now concerned about the pace of technological change in banking – dropping to one in six among commercial banks
- 90 per cent are building technology design and architecture into their business planning
- 80 per cent of retail banks and 74 per cent of commercial banks have already worked with infrastructure providers
The impact of coronavirus
When asked specifically about the Covid effect, the most common response, at 41 per cent, was that the crisis has had “a little” impact, and recovery is expected to be swift. Around a third (32 per cent) said that the virus will affect their business “quite a lot”, with changes being made to their business and cost reduction where possible. A quarter (26 per cent) said the impact would be “significant and wide-ranging”.
Just 5 per cent of the retail banks surveyed were concerned about the prospect of a recession in the near future, compared to 31 per cent of fintechs and 41 per cent of PSPs. The most confident banks were those that have already made heavy investments in their tech stack, or developed the mindset and realigned their infrastructure requirements to make more use of third-party services and platforms, enabling them to respond to changing demand.
Business-as-usual challenges stay the same
Higher on the list of concerns and challenges for all financial institutions were the impacts of regulation and constantly evolving customer expectations – two challenges that could have topped a similar poll at any time in the past decade. Even a pandemic shutting down entire nations cannot replace business-as-usual challenges.
The banks’ pre-Covid embrace of digital was initially driven by the demands of customers and then by banks overcoming their traditional reluctance to cloud-based delivery of essential transaction services. This trend has been accelerated by the pandemic, but most banks were already working with third-party financial infrastructure providers and technology has proved its value.
When it comes to the challenges of building a digital-first relationship at scale, the need to create both a user experience and a user interface that work for a wide range of customer types came top of the list. The challenge is providing the experience rather than the underlying technology.
Rather than being a maintenance headache for IT departments, banking infrastructure has become a much more strategic concern, with a significant number of businesses now having an interdisciplinary team looking at the latest technology innovations. This crucial decision is not simply a matter of IT selection, but can affect the entire business and demands broad input and buy-in. It is vital for banks, payments businesses and fintechs to understand the role of financial infrastructure alongside new applications, services and solutions, working together to optimise delivery of the right propositions to meet customer need.
Collaboration is a key aspect of any futureproof business, even when the future is unclear, and that doesn’t stop at internal departments working together. Banks, PSPs and fintechs must look for other organisations as potential partnership opportunities, including current competitors, partners, customers and suppliers. The distinction between these categories is blurring all the time and what has come into even sharper focus in 2020 is that businesses are all in this together.
2020 has provided an excellent learning opportunity, and accelerated overdue digitalisation plans by forcing them to the top of the agenda to cope in the crisis. 2020 hindsight will be invaluable to futureproof businesses – it has laid firm foundations for a bold new future of digital banking.
A series of white papers based on the study is available to download here.