Yes, it’s been 10 years. The decade that followed was a grim one in banking, focused on cost cutting - in headcount reduction and rolled back investment in innovation – and regulation. For many, the only growth areas were in compliance and risk management, as banks were forced to keep up with the flood of new regulatory compliance requirements.
But the world is a different place now: Interest rates are rising and economies are strong. And the foot is off the gas pedal of net new regulation (GDPR and PSD2), deadlines having passed and in the US regulation is actually being rolled back (as I forecast in my blog about the Crapo bill back in March).
Growth is now the biggest priority around the world, for both banks and insurance companies. We’re seeing banks pursuing growth in two different ways.
First, as you might expect, as banks fight against new digital competition – fintechs and to a larger degree, big tech like Amazon, banks are investing on improving the customer experience in both retail and commercial banking. The benchmark for what is good on your mobile device is not bank A versus Bank B. It’s Bank A versus Amazon, Google, Facebook, Instagram etc.
So banks are investing in having 360-degree insight into their customers’ activities, and also providing a seamless, omni-channel experience for their customers. They are using analytics to understand in real time, and also to predict in the future, their customers’ needs so that they can upsell and cross-sell in a personalized fashion.
In Europe, particularly in the Netherlands and the Nordics, banks have been so successful at providing an excellent digital customer experience that they are cutting their physical footprint dramatically. On the other hand, most banks in other regions are maintaining or expanding their branch footprint. (Wells Fargo in the US is a notable exception to this).
The second trend of investment is behind the scenes – but is directly linked to the acceleration of innovation. Around the world, and particularly in the US, banks are strategically focused on transforming their IT architectures and operating models.
Over the past decade, many banks were forced to react tactically in order to “check the box” with regulatory compliance requirements. This compounded the already existing problem of siloed technologies, and operational gaps that had been addressed by “throwing people at the problem.”
Ten years seems like a long time in banking. The most strategically focused banks are preparing for the next decade by investing behind the scenes. The investment in designing and optimizing IT architecture and business processes is the strategic, foundational work will enable banks to innovate with confidence and agility.