The transition to open and digital banking is inevitable. The tide of consumer expectation has shifted and banks that don’t adapt will not survive. But it’s not too late for those falling behind.
One of the biggest inhibitors for lagging banks is the lack of any process, platform, and, in some cases, government regulation, that would enable them to learn from new and innovative technologies.
In countries where sandbox environments are supported by industry and government, integration between fintech providers and banks is permitted and encouraged. They are empowered to test, learn, and grow together, experimenting in a safe way, introducing risk incrementally into their environments. This allows them to stay relevant and competitive, and learn firsthand what they need in order to compete in a digital economy.
In North America, we need to learn from our international neighbors. We need to work closely with our governments and industry bodies to encourage innovation. In order to survive, we must tap into the same creative, experimental energy that powers so many other technology tracks in our region.
By opening our minds to the new order, we can future-proof our banks and compete in the race toward an open, digital banking ecosystem.
Digital leaders will rise to the challenge and adopt new “Open” and “Beyond” banking models to differentiate themselves from the mainstream and future-proof their business.
Laggards will maintain the status quo and/or adopt basic digital functionalities, fulfilling only the simplest customer needs related to core banking products.
As a result, they will see shrinking customer bases and increasing competitive pressure, not only from traditional competitors, but also from foreign digital banks and fintech companies. The banks most at risk are small and midsize banks (mainly credit unions and regional and community banks) because, due to their scale, innovation is difficult. They simply don’t have the budgets to place technology bets and get them wrong.
This creates a follower mentality that must be acknowledged when tackling the adoption of a digital model. Change for these banks cannot occur on an individual basis. Instead, they need to be thoughtful and creative in their approach.
For example, alliances could be created that would allow multiple banks to combine budgets for a bigger footprint and more buying power. This type of collective could also tap into the vendor and service provider networks to leverage the latest technology — a more feasible (and attractive) option to vendors when the deal size is expanded across multiple banks.