Guest article by SecurionPay
The demand for more personalization and the need for adapting to new standards make a number of banks lagging behind technology companies that offer customer-oriented solutions. Are Swiss banks ready for digital transformation?
PwC’s Global Fintech Report 2017 states that 88% of global banks are worried about losing revenue to standalone fintech companies. Banks are aware of the need for their collaboration with fintech, but it should also come with improvement of the legacy systems.
There’s no question that banks have come a long way. Over the years we have seen many advancements in European banks, but heavy regulations that are incompatible with the newest technology aren’t helping the industry. Some of the banks are moving fast and pushing the adoption of blockchain technology, but, overall, European banks are embracing technology slower than their American counterparts.
The European banking industry is under pressure, as fintech has boomed in the last years. Banks are spending billions of dollars on digital transformation, combining it with partnerships and collaboration with fintechs. It takes around 5 years to replace the core system in the biggest banks and it could cost over $1 billion to make their systems fit into the 21st century.
Banks still lag behind fintechs when it comes to user experience. The modus operandi hasn’t changed significantly over history.
The current state of banking in Switzerland
Switzerland, known as one of the world's best fintech ecosystems and the world’s most innovative country for the ninth year in a row according to the Global Innovation Index 2019, offers banks and fintech companies many advantages.
Yet, the harsh truth is that most Swiss banks are still living in the 90s and show very little understanding of digital technology. Big banks are slow at innovation, so they need to embrace changes to keep their customers closer. Swiss banks are well positioned on the European market, but lag in digital development and implementation of the newest technology.
According to the Change in Banking report, 48% of decision makers at retail banks admit that they are three to four years behind fintechs regarding innovation and services focused on consumers. The situation in Switzerland looks even worse.
In comparison to European banks, Swiss ones are not that agile and only a small percentage of their processes is automated. 59% of Swiss banks offer less than half of their products or services online. 87% of banks optimize their products for mobile use, but only a third of them provides their clients with fully optimized mobile banking.
Switching to online
Digitalization of the financial sector begins in people’s minds and needs to come with reorganizing organizational structures and implementing an agile model. Otherwise, banks may be replaced by customer-oriented fintechs.
The fact is that agile and interdisciplinary teams in the banking industry are still the exception and only 15% of Swiss banks have introduced the agile model. Digitalization requires business and IT collaboration to put innovations in place much faster.
There’s still a knowledge gap, as the mindset of banks is built on siloed departments. They lack digital specialists with broad know-how of switching from paper to online banking. Hence, there’s a need for equipping the staff with new skills and capabilities, which equals adopting agile structures in the organization.
Banks need to adapt to new standards to overcome the pressure for delivering personalized and customer-oriented products and services. But what with banks that are too clunky to make major changes fast enough?
What helps banks to keep pace with fintech is building partnerships and collaborating with companies at the forefront of tech disruptors. While big banks notice a two-digit drop in their market share in recent years, fintechs based on the newest technology scale massively. Banks that are struggling to keep the pace should collaborate with tech companies that are flexible and can help them implement advancements much faster.
Making a shift in consumer behavior, the way they interact with banking solutions and what they expect from banks was a natural consequence of technological development.
What needs to be done is reducing the administrative burden, as banking is no longer associated with visiting a branch. It has become a part of our daily activities, so tech companies implement solutions that meet ever-changing industry demands much faster. Banks have to adapt and offer products and services more aligned with today’s customers’ lifestyles. Consumer first is key.
Even though banks across Europe decrease the number of their branches (e.g. in Germany it fell by 5,9% in 2016), big players still focus on branch redesigns instead of building easily accessible platforms. Maintaining physical branches generates costs, thus gives digital banks market dominance, as they can offer better rates and lower fees.
Banks that stick to legacy infrastructure will lose a major part of the market, as consumers prefer digital alternatives, such as Revolut or TransferWise, which significantly reduce high currency conversion costs. It sounds obvious, but it's surprisingly hard to execute in practice.
Will banks be ready?
The recently enforced Payment Services Directive II (PSD2) is another test for banks.
As 41% of European banks failed to meet the first PSD2 deadline (in march 2019), it’s doubtful whether they will be ready before the next regulatory deadline, which is September 14.
The next question is whether they understand what needs to be done to meet the regulations and whether they have the appropriate technology in place. And how will banks use PSD2 regarding their existing banking services?
The future is wide open for both fintechs and banks, but the question is how they will use the opportunities that lie ahead. Meanwhile, fintechs outperform banks in providing technology, convenience, and user experience that people expect nowadays.
Banks that are operating on the basis of complex legacy systems may not be that effective at utilizing customers’ data which lead to providing them with a personalized experience. They are running out of time, so now they should focus on searching for partnerships in the areas where they lag. Finding a reliable partner is faster and cheaper than building their ecosystems.
Author: Lucas Jankowiak, SecurionPay CEO