Financial Services

Banking in 2021 and Beyond

Digital transformation will have a far-reaching impact on the banking sector. Banks will move away from branch-bound services to “banking as a service” model in the near future.

• Banks are transforming digitally by recalibrating themselves and changing operating models.
• Banks are increasingly looking at ways to improve consumer personalization through data and analytics models.
• New banking models such as “banking as a service” will be driven by digital transformation.

Podcast Audio Transcript

Alisha: Hello listeners, this is Alisha; thank you for tuning in to yet another exciting and informative podcast from us at Infosys BPM. Today, the topic is “Banking in 2021 and beyond”. And to talk about this, we have here with us, Sourav Ghosh, Industry Principal for Digital Financial Services. Welcome Sourav. How are you?

Sourav: Thank you, Alisha. It’s nice to be here. I’m doing good.

Alisha: Sourav, banks and financial institutions constitute probably one of the most digitally advanced industries globally, as we know. And with Covid-19, this adoption has only been accelerating. So, let me ask you: How will banking be in the New Normal?

Sourav: You are absolutely right, Alisha. These are exciting times in Banking, and as an industry practitioner, I am thrilled to see the innovation happening in the banking ecosystem all around.

Consumers are expecting more from their banks – they want to be able to access their bank accounts or services from anywhere and at any time. The explosion in new digital banking experiences delivers a whole new level of convenience to consumers, who are now banking primarily through mobile, web, chat, and other digital channels. Branch-based banking is increasingly becoming obsolete.

Alisha: That’s true! I can’t remember the last time I was in a branch!

Sourav: Yes indeed! And talking about Covid-19, it has changed communities, industries and the world in a way we could have never imagined otherwise. Globally, since the last 9 months, banks have been focussing on five key areas and I see most of the transformation in the near future to be centred around these:

• Balancing employee safety with productivity;
• Recalibrating operating models to support affected consumers;
• Minimizing any operational disruption to keep services running while meeting regulatory & compliance obligations;
• Changing operational resilience through remote working models & broader environmental factors; and
• Mitigating & managing risk.

I believe there will be higher demand on digital capabilities - from remote working to remote servicing to even remote selling for consumer engagement. A research found that 75% of financial institutions consider themselves not adept at using data and analytics for consumer personalization.

To get there, banks must adapt to the new landscape and embrace new business models like “Banking as a Service” driven by digital transformation that can provide agility and security to consumers, while complying with regulatory requirements.

This presents a big opportunity for digital transformation in banking.

Alisha: That sounds radical and progressive, as most things have been increasingly getting commoditized. How is “banking as a service” fundamentally different from traditional banking services and what would banks need to do to be successful in that play? Please tell us your thoughts on this.

Sourav: Good question. To understand how it’s different, let me step back a bit and talk about how it originated.

Since about the last decade or so, financial technology companies or fin-techs as we know them have been disrupting the traditional banking services industry with a wide assortment of innovative, plug-and-play, multi-channel and easy-to-use banking solutions. New offerings, like digital wallets, wealth management, peer-to-peer (P2P) lending and payment offerings, are increasingly becoming attractive to banks and other financial institutions consumers.

With Banking as a Service, banks are morphing from being “a builder and manager of financial solutions” to being also “assemblers/aggregators of consumer-driven financial management tools and related offerings”. Developing BaaS solutions allows legacy banks to establish profitable relationships with emerging fin-techs. This provides a greater competitive edge to banks.

BaaS helps banks accelerate their growth in new markets and rapidly meet the expectations of digital-savvy consumers, but moving to BaaS may not be easy and quick.

Alisha: “Banking as a service” reminds me of another industry buzzword called “open banking”. Are both of these the same? Could you give an idea of what it is and how it helps?

Sourav: Yes and no! Let me demystify that for you.

Open banking fundamentally refers to any initiative by a bank to open its APIs to third parties and give those third parties access to the bank, whether that be access to data or access to functionality. It revolves around the premise that consumers own their banking and transaction data and as such can choose to share it with whomsoever they wish to get better products and services.

Banking-as-a-Service is a bank API strategy falling under the open banking umbrella, which requires access to a functionality. It is an end-to-end process that allows building on top of banking provider’s regulated infrastructure and providing on-demand services.

Let me give you an example of what open banking could do for you as a consumer. Say you have booked tickets to a football match, bought a flight ticket and now looking for a hotel. Now, if you have given consent to your bank/airline company to share your data, the next thing you know would be your inbox to have offers from three different hotels with football themed holidays, 20% discount offer on your favourite team’s T Shirt on buying with your retailer.  All this has now become par for the course.

Alisha: I see! “Open banking” is like you are opening up your data to other institutions for you. It’s a win-win scenario. So, if you were to crystal-ball “digital transformation of banks in 2021 and beyond”, what would be your key recommendations?

Sourav: Digital transformation is about more than just providing online and mobile functionality.  Eventually the starting point for each financial institution will depend on its business strategy, market position and capabilities, but to me it’s about ensuring four fundamental things:

1. Reimagine the consumer journey: Today’s banking consumer’s benchmark is one-click ordering — see it, like it, click it, buy it. That’s the purchase journey they expect from everyone they do business with.
2. Leverage the power of data: Leverage advanced analytics to better anticipate loan defaults or to find consumers who, due to overzealous discounting, are underpaying. And this leads to banks then updating the price of these products and services.
3. Redefine the operating model: Consumers increasingly want the best of both worlds: a digital experience when they need speed and convenience and a human experience when they need advice for more complex products such as investments or mortgages or when they have an issue or problem.
4. Build a digital driven organization: While infusing a digital mindset into a traditional banking culture could prove to be challenging, success will depend on executive commitment to make this happen. Also teaming up the with fin-tech ecosystem will be critical. That’s where you would get some of the most innovative ideas.

Also, if you have any queries, do reach out to us through the email address on the podcast description. Watch this space for more exciting podcasts coming up. Once again, thank you for tuning in, stay healthy and socially distanced. Have a nice day!