The Covid-19 pandemic has forced people to live digitally like never before. This shift has, among other things, raised consumer expectations across the board. People have become used to on-demand, intuitive and frictionless digital services, and they expect the same from their bank.
These digital expectations are across the entire financial services spectrum, and smaller local banks in the US are no exception. As a result, these banks are being forced to offer digital customer experiences that rival those of the far wealthier industry incumbents and digitally savvy, agile fintechs.
But why is this such an issue for American regional banks, and what can they do to overcome it?
Simplifying legacy tech
One barrier to these regional banks adopting the latest technology is their existing legacy systems. Complex IT doesn’t happen overnight; rather, it’s a gradual process. A bank changes, growing into new markets or expanding through mergers and acquisitions. As a result of this culture of change, IT systems can become a complicated mess over the years.
Legacy infrastructure can often mean being weighed down by manual processes, numerous integration points and divergent procedures for various products. Indeed, many regional banks in the US currently use five or more systems to support their portfolio of products. This is a cumbersome setup, and it can create the need to run a dedicated system just to manage all the others.
Operating under such conditions is problematic. It can often result in higher maintenance costs and time-consuming processes. But, perhaps even more importantly, it prevents banks from having the agility required to offer the truly digital products and services their customers crave.
In an ideal world, a bank would have unlimited time and resources to build its IT system. Unfortunately, this is rarely the case, and there are more than a few reasons why regional banks and credit unions don’t consolidate into a single system.
- For a start, some decision makers at regional banks simply aren’t aware of the problems caused by a complex IT infrastructure, or indeed that it’s possible to operate the entire infrastructure under a single system
- Others are concerned about transitioning data from old systems to a new one, due to security concerns and the time-consuming nature of the process
- And many decision makers at regional banks are concerned by the implementation time of a new system, and that it can block other projects in the process. This is an especially sticky issue with many banks running in survival mode post-pandemic
Many of the barriers that stop regional banks from consolidating their infrastructure under a single system are legitimate concerns; however, overcoming them will need to be done sooner rather than later. The continued growth of many smaller banking institutions and outright survival at others depends largely on their ability to evolve. As most of the low-hanging technological fruit has already been consumed, it’s imperative for these players to merge their systems in order to remain competitive.
The key to this is simplification — replacing today’s fragmented systems and applications with an integrated architecture that responds rapidly to customer demands, market opportunities and potential threats. In cutting out the need for many systems, a bank can enjoy long-term cost savings, improved efficiency and, most importantly, deliver a better customer experience.