Banks must capitalise on the data opportunity or face extinction

The banking sector is at an inflection point.

Traditional banking systems remain largely built on the rails of decades-old technology

Household names that once reigned supreme are now subject to unprecedented competition from the challenger banks. Banks that were born digital and unencumbered by clunky legacy processes.

Spurred on by a relentless cry for customer centricity, banks today are expected to be so much more than merely a place for consumers to store, spend and save their money. The modern consumer wants sophisiticated banking services that cross over seamlessly into their payments journeys, offering them products and services at the point-of-spend.

Alongside this, historic challenges facing the banking sector continue to present themselves: such as increasing regulatory scrutiny. With so many challenges to grapple with, the time has never been better for banks to seize this digital opportunity.

The role of banks has evolved at an unforgiving and exponential pace, with the Covid-19 pandemic further accelerating the shift to digital. Amidst the wave of digital banks and fintechs already beginning to leapfrog traditional institutions in terms of innovation, speed and capability, this must come as a worrying omen for traditional banks.

Born digital, newer market entrants are unencumbered by legacy processes large banks have abided since their inception. This has brought intense competition across the banking industry, urged on by a new era of customer centricity and product granularity.

Simply put, for banks, any opportunity for inertia has now evaporated. There is no choice but to embrace full-scale digital transformation, and with it harness the myriad business and societal benefits in the process. Or face the very real threat of extinction.

Of course, many banks have adopted some new technology, with varying levels of success. But, on an industry level, systems overall remain far behind the technological standard immediately available to a fast-maturing neobank generation. A generation with an inherent ability to adapt, innovate and pivot – flexibly and quickly.

Traditional banking systems – however you slice it, and however many incremental improvements you bolt on each year – remain largely built on the rails of decades-old technology, badly overdue a bottom-up rethink. However, many practices appear simply too deeply woven into the fabric of traditional banking systems to be migrated without perceived risk of a major disruption. Or at the very least, millions of miles of red tape.

Thankfully, while challenging and admittedly far-reaching in scope, the process of full-scale digital modernisation, migration and optimisation can be achieved smoothly, effectively and – critically – while there is still time. In order for banks to achieve this crucial step-change, they must examine three critical components of their payment operations.

First is the ability to issue cards and products in multiple regions. This is achieved largely through access to flexible API functionality, with which digitally native banks have carved out new USPs. For example, offering low to zero fees on services that big banks have historically used as valuable lines of revenue, such as international card-usage fees. Customers now have choice, and can use a range of challenger banks for specific needs while cutting traditional banks out of the loop.

The second key component is to make the entire process as digital and data-rich as possible. Data is today’s most valuable business asset. Without the power to harvest, interpret and leverage key datasets in real time, businesses miss huge opportunities to use customer card-spend data to develop innovative products completely tailored to individuals and their specific needs. “Digital” no longer just means “online” or “in-app”. It requires harnessing customer-data to empower meaningful, decisive action.

Lastly, banks must ensure they can execute their vision at scale, for millions of customers, 24/7, at the highest levels of security and reliability. Like neobanks, who must think ahead in terms of their processors’ ability to handle the volumes that sudden success and exponential-growth will require, traditional institutions need to adopt processors with the capacity and expertise to both migrate and scale their operations smoothly.