COVID-19 has levelled even the best laid plans for most businesses, but the banking sector may well be the hardest hit. Economic uncertainty is high, staffing levels are low, and challenger banks are banging at the door of the traditional powerhouses at the most trying time in most of their histories.  

Banks have  traditionally been great predictors of change, moving with the times so effectively that many of the earliest banks formed still dominate today. But despite their heritage, they have never faced a test like today’s global pandemic.  

The banking model of the future 

During times of economic strife, the banking industry must protect both its customers and itself. Much of this occurs under a ‘weather the storm’ approach, with some leaders tasked with maintaining business operations whilst others pursue innovative solutions to scale capacity or income. Only one needs to succeed in order to stay afloat.  

But in the decade since the financial crisis, the most recent significant challenge for banking, the industry has become almost unrecognizable – socially, financially, and technologically: 

Road maps are an essential planning tool for any organization preparing to navigate change. It must provide versatility and flexibility whilst also directing travel strategically. Banks will need to make tough choices and prioritize banking platform modernization & digitization programs to reach the operating flexibility necessary to operate effectively around COVID-19.  

Challenger banks were not present during the 2008 financial crisis, but they will certainly play a role during the economic uncertainty that follows the pandemic. As of last year, there were at least 40 challenger banks in the US, more than double than in the UK – all of which are well placed to disrupt. Monzo, one of the most popular European challenger banks, boasts 3.5 million customers and is forecast to reach 5.5 million by the end of the year. How much longer can traditional banks downplay the threat before they also adopt the flexibility, in-app experiences, ease of account setup, and user-friendly interfaces of these rivals? 

Open banking is one route that may help established banks go toe-to-toe with the challengers, which are less at threat due to their lack of physical presence (and cost.) Open banking involves allowing third-party financial service providers access to consumer banking, transactions, and other financial data – via application programming interfaces (APIs.) The risk aversion of banks means that the stakes are perceptively high – particularly in privacy and security – but the modern consumer wants convenience above all else. If all of their apps and accounts can communicate with one another, it takes them less time to administrate their lives.  

Listening to the customer, with intention, has never been a forte of established banks. Their monolithic status, steeped in history and heritage, is a reassuring trait when we must trust them with our finances. But this also makes them cumbersome when it comes to innovation, and rigid when it comes to change. For the banking model of the future, this cannot remain the same. 

Continue the debate at the Banking Innovation Summit NA, a GDS Summit, where we bring together senior Banking executives who are actively seeking to share, learn, engage, and find the best technology solutions. 

GDS Group hosts experts to help experts. We strive to provide an atmosphere for our attendees that enables them to confidently lead their companies through major transformation projects. For information on upcoming events, view our view our Digital Summits. To remain current on our activities, visit GDS Group on LinkedIn | Facebook | Twitter.