Innovation in a pandemic: Why incumbents have not gone Digital Only?

This article was originally published on FintechTalents.

Coronavirus has dialled up the urgency for digital only banking. However don’t be fooled by the excitement, digital only banking is starting to gain momentum yes but it will take a few more years before we see a truly cashless world.

Typically, startups and medium size financial institutions hold their data on modern digital platforms with smaller and faster processes. Enabling a full set of digital banking offerings and a smooth experience that converts even the most sceptical customers.

However, a big part of the population, especially older generations and customers further back in the digital adoption curve, have most of their savings and accounts with incumbents.

Incumbent banks, due to their acquisitions, expansion history and size typically hold their data in a conglomerate of systems. They are usually semi-interconnected with slower, complex and manual processes, impacting the potential for end to end digital offerings.

As such, moving to digital only is a much more complex task for incumbents than many would expect.

In order to move fully to digital, incumbents will have to focus on both long term as well as short term initiatives:

Data

• Incumbents can either move their data to new, clean systems, which will be costly and time consuming (projects that aim to upgrade legacy systems or move data to new systems take years to complete). Or they can create a transparent layer to connect the different legacy systems. The latter can potentially be achieved with blockchain technologies or cloud but it is also costly and will require a few years to complete.

Processes

• Incumbents will have to transform their processes to enable information and insights to move quickly and reliably. In order to do so, automation, machine learning and workflow tools should be leveraged.
• Although the deployment of such tools are easier and faster to rollout, there needs to be a balance between investment in short term solutions vs process improvements.

Innovation

• Incumbents should ensure they invest in new digital offerings and partnerships with fintech and smaller companies which will have out of the box solutions that can be easily and quickly plugged in.

Although most of the incumbents are already on this journey and have started investment in all of the three areas, the journey has been bumpy with priorities changing between BAU, regulation requirements and digital offerings.

Due to pandemic, digital offerings have become a priority and have full support from regulators. Hopefully this will continue in the months to follow. However, as described above due to company size, the complexity of their processes and characteristics of their systems, it will take a while to be fully deployed.

Additionally, even if digital only banking was fully available tomorrow, some of the consumers are not digitally ready to move fully to digital banking. Financial services community needs to come together to drive digital literacy, training all generations in digital (as seen in the pandemic, relatives and friends have taught and supported other customers with the installation and usage of online tools).

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