#Open Banking
#Digital transformation

Digital transformation in banking post-Covid

Oct 16, 2020 - 5 min read
Stéphane Berger, Head of digital banking offers at Sopra Banking Software

The current health emergency has opened the door to an unprecedented economic crisis and catapulted banks to the front line, forcing them to shoulder a big responsibility: keeping the economy and purchasing power afloat, as far as possible. In France, banks have become the link between the government and businesses with state-backed loans. Unlike the 2008 crisis, where banks were heavily criticized for system weaknesses, today they are perceived as a solid ally.

Paradoxically, the crisis has urged banks to address their structural issues in just a few weeks: a system that resists open banking, vulnerabilities to cyberattacks and models that are incompatible with homeworking. All of these factors show resistance to digital transformation and the openness that comes with it. The crisis is hastening the realization that open information systems boost a bank’s ability to remain resilient.

Organizational and philosophical resilience

The health crisis we are experiencing is a pivotal moment in history, especially in the banking sector. Banks have the opportunity to address this fragile balance and bring about in-depth change by switching to a more agile organization. Until now, this transition was gradual, but the crisis has highlighted the need to accelerate on various levels.

Several banking groups have set up business continuity plans to keep their employees safe and enable them to work from home. Yet, banks that to not have a native open cloud system have struggled to access information remotely when VPN capacities were not always sufficient. Therefore, the traditional system has proved its limits: it cannot effectively respond to banks’ agility and flexibility requirements.

Similarly, while open banking, already driven by PSD2, is a focus for all sector stakeholders, it is still difficult to implement. Many French banks are slow to adopt it because their starting framework is more rigid then what we have contemplated. Stakeholders must urgently design and implement an open banking strategy because the crisis is accelerating willingness to generate other revenue streams and gain customer loyalty in a highly competitive sector. A recent study conducted by European open banking leaders and partners of Sopra Banking Software, Tink, shows that 61 percent of financial institutions in Europe see open banking as an opportunity; and for 69 percent, establishing partnerships with fintechs over the next 12 months is a priority. It is in banks’ interest, therefore, to adopt an approach that would benefit both their customers and their employees.

Finally, banks have realized that the crisis will bring about new behavior they will have to address by offering new services. This is what happened when the use of bank cards evolved, as we saw with the rise of contactless payments to promote compliance with good hygiene practices, and which have now been increased to a cap of 50 Euros, in May 2020.

Digital, processes, cybersecurity – modernization is starting but must keep going in the long term

Financial institutions have grasped the role of digital, which has proven to be essential during the lockdown period. It’s both a driving factor for resilience and efficiency. Digital is not just a simple lever for added value; rather, it’s the foundations for drastic change. The digital relationship has become a standard, standalone way of interacting, and it adapts to measures that would have traditionally required human intervention.

A common pointer for all major banking sector stakeholders is the need to simplify banking processes on several levels: loan origination, managing cooperation with professionals and businesses, managing over expenditure and the life cycle of bank accounts. The crisis has expediated what was demonstrated in theory several months earlier – and thanks to more direct and informal processes that do not obstruct approval circuits.

One of the consequences of the crisis is the increased risks of cyberattacks and digital scams. The banking sector takes this threat very seriously, according to a report issued by the European Banking Authority (EBA). Banks must invest in raising employee awareness and training on cyber security, as businesses progressively open up and modernize.

The crisis has demonstrated the value of digital and the limits of traditionally closed systems. Lessons must be learned from this unprecedented period in order to enable banks to securely step up their involvement in the era of modernization and openness by integrating new customer — and also employee — usages. The banking sector’s attractiveness is at stake.