Do banks really need to choose between operations and innovation?
Caroline Hermon, head of adoption of artificial intelligence and machine learning at SAS UK & Ireland | 16:03 Wednesday 8th May 2019 | 0
It’s no secret that challenger banks and fintech companies are changing the banking industry as we know it.
The main issue for today’s banking leaders is not that customers are switching to new high street providers, such as Metro Bank, or to internet and telephone banking specialists such as First Direct.
The real threat is much more subtle — and much harder to combat. A wave of next-generation digital disruptors — such as Monzo Bank and Revolut — are launching completely new types of services that eat into the most profitable parts of traditional banks’ value chains.
Agility, flexibility and an insatiable appetite for innovation are powering the rise of these disruptors. Many traditional banks claim to value these same qualities, yet only a handful of today’s market leaders practice what they preach in their digital strategy documents.
Banks that can’t read the writing on the wall risk becoming obsolete and seeing their market share whittled away. With data-driven innovation speeding the industry towards a future of seamless, integrated, customer-focused services, it really is time to get real or get out of the race.
Overcoming barriers to change
Many traditional banks are so focused on keeping the lights on that they fail to execute their innovation goals. Keeping a bank running profitably, while satisfying the regulators, is no easy task. Transformation initiatives often get pushed down the priority list.
Moreover, in the race to deliver transformation, many banks fall at the first hurdle. Their main competitive advantage — the rich data they possess about every aspect of their customers’ financial needs — is typically siloed in multiple legacy systems and managed by different departments. The task of consolidating data and establishing a central hub for business analytics is expensive, time-consuming and diverts valuable resources from the ‘run the bank’ activities.
Resistance to change is another common barrier to innovation. Automation can be an unwelcome concept for decision makers, especially those who manage large teams and have spent years building up expertise around the bank’s legacy systems and manual processes.
But it doesn’t have to be this way. Banks that adopt a disruptor mindset recognise that machine learning and artificial intelligence are powerful tools. With the right approach, these banks can use the same technologies to both drive transformation initiatives and streamline day-to-day operations, creating a virtuous circle.
For example, analytics-powered automation is not just a tool to eliminate paperwork and reduce headcount. By freeing up time, it can also help employees focus on high-value transformational tasks, revealing new opportunities for product development and highlighting ways to build more customer-centric services.
Finding a winning formula
Traditional banks may find transformation painful. But when they do embrace change, the benefits can be huge. SAS works with many of the leading banks in the world today, helping them develop and execute effective analytics strategies that build on their successes and strengthen their ability to compete.
Analytics is key to transformation because it’s one of the unique competitive advantages that large, well-established banks have over their new rivals. With millions of customers who trust and value their services, these banks can accumulate a vast amount of incredibly rich data about customer behaviour.
Since modern analytics techniques, such as deep learning, are extremely data-hungry, the banks with the most data will be able to build predictive models that are far more sophisticated and accurate than their competitors. This could prove to be a decisive advantage as AI initiatives begin to take centre stage in transforming customer service.
Transformation in practice
Recent success stories illustrate the very real rewards that banks can reap from digital transformation. For example, SAS has helped RBS put timely, accurate and insightful data analysis at the heart of every decision and use customer feedback to improve its services.
Similarly, Nationwide recently worked with SAS to enhance member communication. Using AI and natural language processing of customer emails, the building society identified the communication methods that produced a positive reaction — and those that created frustration.
The analysis revealed that 26% of all interactions could be moved to an online process — reducing waiting times for customers while saving time and resources. What started as a proof of concept has now become a company-wide initiative to use data analysis to streamline its back-office operations, develop new products and evolve its services.
Examples like these show that with the right analytics strategy, banks don’t have to make a choice between keeping the lights on and driving transformation. When banks mobilise their talent, data and expertise, they can combine innovation with efficiency and keep the disruptors at bay.
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Rigour builds resilience
There is a relentless flow of new technologies and development methodologies unfolding on many fronts in the financial services arena...
Enhancing offerings to SMEs with the use of technology
Small- and medium-sized enterprises (SMEs) make up a significant proportion of British businesses...
New digital bank Vive receives banking licence
New digital bank Vive has received its UK banking licence with restrictions from the Bank of England...
Aldermore names Damian Thompson as new group MD for retail finance
Aldermore has named Damian Thompson (pictured above) as its new group managing director for retail finance, subject to regulatory approval...
Tink closes €90m investment round
Tink has completed a €90m (approximately £76.8m) investment round — its largest funding to date — to support its European expansion...
Step back from the hype: what can AI realistically deliver in 2020?
While talk of artificial intelligence (AI) in financial services generates great excitement, it’s important not to get too carried away and caught up in overly ambitious uses of the technology...
Temenos launches microservices architecture tool for large banks
Banking software company Temenos has launched Temenos Transact — a microservices-based architecture tool designed for large banks...
Starling Bank enhances product offering for SMEs
Starling Bank has enhanced its product offering for businesses and sole traders with a range of new features...
2020 vision: Open Banking is open for business
Last year was a major one for Open Banking. September’s PSD2 deadline encouraged banks to accelerate their efforts to become compliant, and while the nuts and bolts of the technology did pose a challenge, the opportunity for both banks and third-party providers (TPPs) has finally come to light...
FCA calls for easy access cash savings reform
The FCA has proposed to reform the easy access cash savings market...
HTB launches new 30-year, interest-only loans
Hampshire Trust Bank (HTB) specialist mortgages division has launched 30-year, interest-only loans...