Matt Phillips, VP, Head of Financial Services UK and Ireland, Diebold Nixdorf, writes for Payment Expert on how the banking sector has paused in trying to pioneer and become numb to innovation. 

He outlined that high street banks often look to tech giants like Amazon and Apple with jealousy, but if they continue to play it safe with their own approach, traditional financial institutions will struggle to ever make that level of change.

The progress and transformation made over the last decade due to technology has revolutionised sectors from top to bottom. Whether it’s retail, transport, healthcare or communications, our daily lifestyles now revolve around the gadgets we have access to 24/7, 365 days a year. Both in our pockets and around homes,  technology is increasingly creating efficiency and fulfillment in our lives. In banking and payments, we have seen merchants and consumers respond to the pandemic by utilising contactless payments for example, as 69% of retailers saw an increase in use during the pandemic, with 94% expecting the trend to continue over the next 18 months.

Tech giants like Amazon and Apple have been shining lights in the tech race, responding to consumer behaviour and business demands to shape their products for the future – always being one step ahead of the curve. Whilst the banking sector hasn’t been exempt from technology enhancements, it has lagged behind other industries for the level and breadth of services available to customers and for the speed at which it has made change happen. 

Challenges such as legacy technology and the fundamental need for high security has left the sector feeling slower, when compared to those leading the way. As many look towards tech innovators with envy and awe, whether they are blue chip firms or startups, where is the belief that banks can make a level of change to stay truly relevant to consumers and drive the sector forward?

Many commentators believe banking has become numb to innovation and has simply reverted to playing it safe. While many banks could previously operate from a place of safety in terms of market share. The landscape has been changing and becoming increasingly competitive. First came challenger banks with exciting new models and approaches, then came Open Banking, and now we have a thriving fintech sector with some of the world’s most exciting products and services being developed from the ground up. 

Fintechs globally have seen their impact realised as  investment in the sector continued its remarkable rebound in the first half of 2021, rising from $87 billion in the second half of 2020 to $98 billion. If the banking sector doesn’t wake up and take action, it risks being taken over by new market participants, disruptors, and non-traditional brands making their mark in the lives of traditional banking’s customers.

As the competitive landscape has evolved, so too has customer loyalty, and this poses another significant challenge for banks. Loyalty has been an important focus for many companies, including banks, with a brand’s strength often being tied to customer allegiance. But with more contrasting options on the table than ever before, and stagnant traditional banking technology, customer loyalty is a ticking time bomb and loyal customers will become harder to find and keep. 

Similar to how they buy products from Amazon or watch a new series on Netflix, consumers want frictionless, personalised experiences when they bank. With a more bespoke experience comes the opportunity to foster a more personalised connection, showing understanding of the customer’s values and needs, and ultimately demonstrating that the customer can place their trust with the bank. 

Using data effectively is key to this personalisation, specifically when it comes to young customers, who are increasingly attracted to data-based services. Our recent report, Motivations in Modern Banking, with NielsenIQ, showed that Gen Z customers are three times more likely to be attracted to data-based services than Boomers. The report also looked at the specific services that young customers are looking for technology-driven personalisation with; 68% want visibility of savings targets and 59% would like personalised spending assistance, delivered through data. 

When planning their technology roadmap and considering how they can take the experience of their customers to the next level, banks are still in a conundrum. The first hurdle is unpicking the spider’s web of archaic tech many large institutions still have in place, with various legacy systems built on top of each other there are often limits to flexing and adapting for the current environment and latest trends. It is vital that banks can join channels up efficiently to offer frictionless and personalised services, it means they need to be offering a fully integrated model. 

Access to cash and branch-based banking continue to be essential banking services, but the changing nature of highstreets and the reduced use of cash accelerated by the COVID-19 pandemic has had a significant impact on both of these essential areas of the banking landscape. One potential path to future success in bringing consumers the banking services they need, particularly physical ones, is through shared utility models. Progress in this space has been driven further by the recent Access to Cash Action Group report which suggests shared banking hubs will be brought in as soon as possible. 

A common argument here is ‘why would banks invest in doing it on their own if we could collaborate with the industry and solve it together’? As shared banking hubs become a reality, it will be vital that the industry innovates as a collective and collaboration between banks is gauged towards providing more personalised and accessible services for customers. 

The shared model is a step in the right direction, but banks must ensure that new hubs are digitalised and complete with the latest banking technology solutions on offer, as well as having the multiple touchpoints of the banking journey knitted together so the customer still has the experience of their banking brand however they interact with them. While cash access has spurred this development, other key elements of the banking service on offer to customers, such as advice, mortgages and loans, should not be ignored, so banks must align their strategies.

In 2022, banks need to act fast and capitalise on the opportunities in front of them. The level of customer data they have at their fingertips, is arguably the most valuable advantage of technological progress that there is. Knowing how customers currently bank and using that knowledge to explore and predict what they might need in the future can ensure that any technology and product strategy is used to create truly personalised experiences. With financial literacy and awareness improving at a rapid rate, it is more apparent than ever that banks should be the hub of a person’s financial life, a one-stop-shop for all their needs in terms of services, advice, and security. The clock is now ticking, and unless banks take action soon, the ship may well sail when the market’s new players have already taken over.