# Insights

Feb 27, 2020

From a traditional bank to an engaging one

Reading time: seven minutes

In the second installment of this series, Bruno Cambounet explains the practical steps a legacy bank can take toward becoming an “engaging bank,” and the challenges it will face along the way.

The banking sector is in a state of flux, with changing consumer behaviors, new technologies and emerging industry entrants all contributing to the new financial industry landscape. With such change, there’s great opportunity for legacy banks to take advantage of the new possibilities and prosper as a result, but they must act soon, with agility and intelligence.

In the previous article in this series, I explained that the answer for legacy banks lies in making the transition to becoming an “engaging bank” — that is, a bank ready to adapt in the fast-changing nature of the digital era by partnering with other institutions or entering into ecosystems to learn, share and improve the end-consumer experience.

Making such a transition is, however, no small task, and banks wishing to do so will have to overcome obstacles and implement their own changes.

A new co-opetition

One of the key steps in becoming an engaging bank is entering into partnerships with nonbank providers, such as fintechs, insurtechs and even GAFA neobanks. In doing so, legacy banks need to develop new, indirect business objectives, outside of traditional banking approaches. The result will be that legacy banks can reach new customers segments, leverage innovative technologies and provide a better experience for the end-consumer.

However, simply partnering up with these new industry entrants isn’t enough. Unless legacy banks are active, engaged partners, they risk ultimately becoming disintermediated by their younger, more agile counterparts.

In order to stay relevant in these partnerships, legacy banks need to be willing to adapt and learn. In fact, such partnerships provide the perfect platform for legacy banks to better understand why industry disruptors are so successful in certain areas, and what practices they can incorporate into their own business models.

Take, for instance, the recent partnership between UK-based B2B marketplace platform and startup Funding Options and Dutch multinational banking and financial services corporation ING. Of course, the move allows Funding Options access to a vast network of potential customers and a powerful, established partner; but ING can tap into its new partner’s digital and innovation expertise, incorporating that into its own core business model and thus becoming prepared to engage with a new type of client.

Being an engaging bank is all about being in a constant state of adaption, able to quickly take on and imbibe new ideas best suited to the digital era. By partnering with industry disruptors with a strong culture of innovation and user-friendly products, legacy banks ensure they stay relevant to a wider market while also learning how to improve their existing core products and services.

A question of data

Data management is another recent challenge for the modern legacy bank to navigate. It provides banks with invaluable information and insights about their clients, including how to create and tailor products and services to best target them. And the billions of customer interactions overseen by legacy banks means they’re in no short supply of data.

This plays an important role in the transition banks need to make. Indeed, customer retention is 14 percent higher among companies applying big data and analytics to deal velocity, according to Aberdeen. Furthermore, the introduction of open banking and PSD2 allows legacy banks to provide trusted third parties with access to their customers’ account information, opening up the possibility for an ecosystem of new services.

Problematically, many legacy banks are still struggling to utilize the vast swathes of data at their disposal. According to a recent survey by BAI, 46 percent of financial service organizations say they could make better use of customer data to improve product and service recommendations.

In many cases, legacy banks simply don’t have the tools or the know-how to turn their knowledge into products and services tailored toward their clients. (IBM research shows that 92 of the top 100 world leading banks rely on the IBM mainframe – a technology not fit for purpose in the digital era of banking.) This is exactly why industry disruptor adoption is so high, and exactly why legacy banks require the experience of industry disruptors to help them harness the power of data.

Overhauling legacy systems

In order to create better customer experience and utilize the data at their disposal – and therefore become an engaging bank – legacy banks need to have core systems fit for purpose in the digital age. Problematically, many banks continue to rely on the same legacy systems they have done for years, largely because of concerns of the cost of transforming such systems and teething problems that might come with it. In fact, 39 percent of banking executives said that their complex IT systems — and the cost of modernizing those systems — was the biggest obstacle they face in adopting new technologies.

In the digital era, where the rules have changed and being able to keep up with the latest technology developments is king, legacy banks need to have systems capable of handling the new and fast-moving demands. This goes beyond updating their existing legacy systems, and instead working with proven external partners who can provide best-of-breed technology solutions. Forrester identifies the need for a Digital Banking Engagement Platform as follows: “DBEPs have become a key element of digital banking transformation, as they can become the nucleus of digital core banking, an architectural approach to ease transformation and foster rapid change.” (The Forrester Wave™: Digital Banking Engagement Platforms, Q3 2019).

Becoming an engaging bank

The disruptions that come with the age of digital banking will only be problematic for those institutions that refuse to adapt, and profitable for those willing to make the necessary changes. As we’ve seen above, legacy banks must embrace the new landscape and enter into mutually beneficial partnerships with companies that can offer new insights, innovative services and key learnings.

In the next installment in this series, we’ll look at the steps banks can take when entering into these partnerships.

Bruno Cambounet, ​Head of Product Marketing, Digital Solutions at Sopra Banking Software