Of course, by boring, Bateman means “reassuringly routed in history”; stability has long been a core characterising tenant of what people think of when banks spring to mind.
Just look at Barclays, which can trace its origins back to 1690, the year Massachusetts Bay became the first American colonial government to issue paper money. For Bateman, it’s clear that for many financial institutions, “familiarity has become part of their selling point”.
But, despite their longevity, “banks have managed to retain and attract new customers by modernising and innovating,” Bateman adds.
“Barclays installed the world’s first cash machine in Enfield in 1967, 25 years before the first online transaction in 1994,” he says. “The first digital-only UK Bank, Atom Bank, launched in 2016, signalling a decisive shift toward online banking.
“By 2017, there were 100 digital challenger banks worldwide, holding nearly US$161bn in global banking assets. By the end of 2022, there were 291 challenger banks, the largest being Brazil’s NuBank, with a valuation last year of approximately US$15bn.
“Starting as a credit lender, NuBank has enabled millions to access a bank account for the first time. These examples illustrate how digital banks have democratised finance, creating a more connected and competitive landscape than ever before.”
However, in today’s era of innovation, banks must keep doing just that – innovating. But in doing so, is there a danger that their long-held value, trust, could become diminished if innovations move too quickly? Conversely, if they stay too far behind the curve, could they lose the trust of the modern consumer?
Banking: Maintaining trust while continuing to innovate
So, how can banks maintain the right balance between trust and innovation? Bateman says: “While transformation is crucial to banks’ survival, digitalisation must not come at the expense of trust.
“Customers typically want a bank that’s recognisable, accessible, transparent and stable – somewhere their money is secure and easy to access.
“Customers also want low fees and competitive interest rates, and since the advent of open banking, they want to securely share their financial data with third-party providers, to access a wider range of products to save money on loans and mortgages, for example.”
It’s clear that in today’s banking landscape, meeting the needs of customers and providing the best experience is key. A 2022 survey of 2,087 adults conducted by UK Finance found that 81% of adults say the quality of online experience determines who they bank with.
The study noted online banking had risen significantly since the pandemic, identifying the largest rise in web banking was among the 55+ age group, those who have grown up with bricks and mortar banks and whose formative years predated the internet.
Bateman adds: “The FIS® 2023 Global Innovation Report found organisations are increasingly innovating to prepare legacy operations for the future.
“Essential to future innovation is the availability and deployment of data, analytics, modern technologies and solutions to drive process automation, workflow and collaboration.
“Data will allow organisations to offer a more personalised and differentiated user experience to keep customers more engaged – whether through embedded finance, cryptocurrencies or metaverse experiences.
“Banks can also innovate by using artificial intelligence (AI) to support improvements in working capital and cash flow. AI and machine learning technologies have typically focused on the back end of a bank’s operations, automating workflows and spotting fraudulent transactions.
“Soon, we will see AI playing a greater role in the front office, from managing customer enquiries, to analysing market data. The technology will also be used to rapidly monitor macroeconomic, credit and interest rate risks for effective capital planning.”
How banks can overcome today’s market challenges
However, achieving these innovations by leveraging the newest technologies requires banks to overcome the latest challenges in the market.
“To remain attractively ‘boring’, banks must first survive consolidation,” notes Bateman.
“Consolidation within the banking sector has created ‘haves’ and ‘have-nots’. The Great Consolidation, 2017-2021, led to in-person stores being closed and large financial institutions focusing on investing in creating digital tools to support and interact with their customers virtually.
“Consolidation is likely to be combined with more regulation, and banks must be ready to be more transparent and use the reg-tech available to remain readily compliant.”
Bateman says: “The speed by which depositors left these banks underscores the impact of social media on consumer confidence and the ease by which end-users can switch accounts.
“In a febrile market, banks must always be able to communicate and demonstrate stability to their end-users to ensure they don’t lose customers, as well as attracting vital new ones.
“It’s now incumbent on all banks to invest in technology to increase their operational efficiency and to improve their customer experience, without neglecting the human touch.
“The recent FIS Financial Services Expectations vs. Reality research found that consumers are still prioritising customer service when choosing a financial provider with 47% of respondents listing this as an important attribute.
“Additionally, customers still want human interaction, with 31% highlighting that in-branch support with a live customer service representative is their preferred method of interacting with their financial services provider.
“This preference was reflected in a 2022 One Poll Internova Travel Group survey of 2,000 US adults, which found that 70% of respondents trust people more than technology. It also found that compared with AI, more people still prefer to use a real person when creating an account or making a purchase (44% vs 35%).”
Retention and acquisition: The key is modernisation
It is therefore apparent that the banks that can best adapt to technological change while retaining high standards of customer service will be most successful. But, as Bateman puts it, “legacy thinking and infrastructure will slow this process”.
He adds: “Too many financial institutions still see tech transformation as a technology-only issue when it is also a cultural issue, in which innovation must be encouraged and boardrooms must move with the times.
“This will require adaptable digital foundations, modernised tech stacks that consider both humans and machines, support for innovation, and value for customers.
“To remain ‘boringly’ stable, banks must now innovate to leverage modern, cloud-based technologies to support new business models that can respond to a dynamic customer base, ready to stay with the same bank for decades, even centuries to come.”