Banks must seize the data opportunity or face extinction

Household names that formerly ruled the roost are now facing fierce competition from challenger banks. Banks that were built from the ground up to be digital and free of clumsy legacy processes.

Banks nowadays are supposed to be much more than just a location for customers to keep, spend, and save their money, thanks to a never-ending call for client centricity.

The modern customer expects sophisticated financial services that smoothly integrate into their payment journeys, providing them with products and services at the point of purchase.

Along with this, the banking industry continues to face significant problems, such as increased regulatory scrutiny. With so many difficulties to overcome, now is the best time for banks to take advantage of this digital potential.

Banks’ roles have changed at an unforgiving and exponential rate, with the Covid-19 pandemic hastening the transition to digital. This must be a frightening portent for traditional banks, given the tsunami of digital banks and fintechs that are already leapfrogging traditional institutions in terms of innovation, speed, and capability.

Newer market entrants, having been born electronically, are free of the historical practises that established banks have followed from their beginnings. A new era of customer centricity and product granularity has ushered in fierce competition across the banking industry.

Simply simply, all possibility of inertia for banks has now vanished. There is no other option than to embrace full-scale digital transformation and reap the numerous commercial and societal benefits that come with it. Alternatively, you could face the very real threat of extinction.

Many banks have, of course, embraced new technologies to varied degrees of success. However, systems as a whole remain far below the technology standard currently available to a rapidly expanding neobank generation. A generation born with the ability to adapt, innovate, and pivot rapidly and flexibly.

Traditional banking systems, no matter how you slice it or how many incremental improvements you add each year, are still primarily constructed on decades-old technology and are in desperate need of a bottom-up rethink.

Many activities, on the other hand, appear to be too firmly ingrained in the fabric of traditional banking systems to be moved without causing significant disruption. Millions of miles of red tape, at the very least.

Thankfully, while demanding and obviously broad in scope, full-scale digital modernisation, migration, and optimization can be accomplished smoothly, effectively, and – most importantly – while there is still time. Banks must analyse three essential components of their payment processes in order to make this critical shift.

The ability to issue cards and merchandise in several locations is the first. This is largely due to digitally native banks’ access to flexible API capability, which has allowed them to carve out new USPs.

Offering low or no fees on services that big banks have traditionally exploited as valuable income streams, such as international card usage fees, is one example. Customers now have options, and they can use a variety of challenger banks for specific requirements, bypassing established banks.

The second important factor is to make the entire process as digital and data-driven as feasible. The most valuable corporate asset nowadays is data.

Businesses miss out on tremendous chances to exploit customer card-spend data to produce creative solutions completely personalised to individuals and their specific needs if they don’t have the ability to harvest, evaluate, and leverage important datasets in real time.

“Digital” no longer refers solely to “online” or “in-app” experiences. It necessitates the use of customer data to enable meaningful and decisive action.

Finally, banks must demonstrate that their vision can be implemented at scale, for millions of consumers, around the clock, with the highest levels of security and reliability.

Traditional institutions must acquire processors with the capacity and experience to both transition and scale their operations seamlessly, much as neobanks must think forward in terms of their processors’ ability to manage the quantities that instant success and exponential expansion will need.

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