Out-Law News 3 min. read
14 May 2015, 5:25 pm
In a new report on digital banking (24-page / 442KB PDF), Oracle said that traditional retail banks face a particular threat from innovative new financial technology companies. It said that whilst banks themselves recognise the importance of meeting the "omni-channel" needs of customers, they are not fully committing to the digitisation of their business necessary to meet those needs.
Banks are too insular and their relationship with customers is "bank-centric" and not sufficient focused on the customer, Oracle said. It said banks need to use customer data more effectively to improve the services they offer customers.
"What banks need is to know their customers in entirety; how their customers spend their money, where they go on holiday, what car do they drive and which is the closest restaurant to their residence – a 720 degree view, which will enable a deeper relationship and greatly increase the bank’s efforts in omni-channel digital customer experience," Oracle said. "Having the data is one thing, but to make the 720 degree view really work, banks need to change their underlying processes to accept these new forms of data specially in the content of real-time digital processing."
Oracle surveyed more than 100 senior decision makers at retail banks based across the world and found that fewer than a quarter (23%) of those companies adopted a "new digital approach" to engaging with customers across different channels, from in-branch services to online and mobile banking.
Instead, the majority of banks replicate their "offline capabilities" in a digital setting with "some extra functionality" added. Oracle said that following this approach means banks will be unable to deliver to "real-time synchronisation" of all the channels that they deliver services to customers through.
"Omni-channel customer engagement is not a ‘bolt-on’ product that can simply be added to existing systems to give a little bit more functionality," Oracle said. "It needs to take a fresh perspective – wiping the established ‘offline’ board clean and asking ‘how should we be doing this in a digital world?’"
According to Oracle's survey, senior decision makers at banks believe enabling mobile payments and allowing customers to get a synchronised "real time view" of their accounts across the various channels of delivery are the two most important things for banks to get right to facilitate banking-on-the-go.
The survey found, however, that most banks (88%) believe their existing legacy estate of IT hampers their ability to digitise their multi-channel services. The high cost of digital transformation projects and a lack of appropriate technology in-house were cited as the next two main barriers to banks' digitisation, according to the report.
Technology and financial services expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, said: "Many traditional banks have long-standing legacy IT infrastructure that has proved to be robust and reliable. A complete overhaul of these systems to new digital technology is viewed by many in the industry as too costly and risky, with banks keen to preserve data security and avoid outages that can lead to bad publicity and regulatory fines."
"The legacy IT estate will usually also be accompanied by a web of existing contractual arrangements with suppliers. Those agreements either need to be renegotiated or terminated to enable digital transformation to take place," he said.
Salmon said that regulators have a role in helping banks to digitise and satisfy consumer demands.
Last year, lobby group techUK called on banks, the UK government, regulators and IT suppliers to develop a "digital modernisation strategy" to help the payments industry harness digital technology. TechUK said that the legacy systems used in the financial services industry on the one hand support "economically critical banking services … including the processing of transactions" but on the other lead to "information silos" and creates challenges in relation to how banks introduce new technology to better serve customers.
"Industry participants and the regulators need to find a better way to work together and balance the need for appropriate conduct rules with the need to maximise opportunities to innovate”, Salmon said at the time.
Respondents to Oracle's survey based in Europe, the Middle East or Africa (EMEA), identified "new banks" and alternative payment service providers (PSPs) as the main direct competitors to their bank.
Banks in Asia Pacific (APAC) view new banks as the main direct competitors to them, ahead of alternative PSPs and credit card providers. Almost a third of the respondents in EMEA and APAC (31% in each region) said they also view social networks as direct competitors to their business, the report said.
Consumer research carried out on behalf of Pinsent Masons late last year found that UK consumers are more likely to turn to the likes of PayPal and WePay as an alternative to traditional banking than to technology firms or retailers.