#Digital transformation

Future of banking: From business to technology

May 24, 2024 - 5 min read
Ludwig Hervé, Head of Content at Sopra Banking Software
  • According to research, 70% of consumers feel their bank focuses more on products than people, and 61% are happy to change to another FI for cost reasons.
  • Banks need to deliver better customer value and retain trust in a collaborative landscape while balancing costs.
  • Technology holds the key via a composable, sustainable, and customer-centric system with as low a TCO as possible.
  • Our 2023 research shows that 58% of banks recorded their “highest level of digital maturity” since 2021.
  • Banks with legacy systems can modernize using a “go-to-cloud” approach, where the monolith is split into pieces.

Since 2020, digital transformation has rapidly accelerated, offering financial institutions (FIs) a fantastic opportunity to enhance and personalize the customer experience (CX). At the same time, collaboration is growing between banks, fintechs, and other players. With that backdrop in mind, Bruno Cambounet, Head of Research at Sopra Banking Software (SBS), and Xavier Rebeuf, Head of Software Delivery at SBS, shared their vision for the tech-centered future of banking.

Customer value and trust vs. costs

According to research by Sopra Steria, Forrester, and Ipsos, 70% of consumers don’t feel their bank looks after them, believing they focus more on products than people. Meanwhile, 61% are happy to switch to another FI for cost reasons.

To remedy that, banks need to deliver better customer value by introducing new services using an ecosystem approach. But they also have to control costs. In Europe, banks have a cost-to-income ratio (CIR) target of less than 50% – a challenge many struggle to meet.

At the same time, financial institutions must retain trust – particularly important, given the ever-evolving collaborative landscape. Our recent research revealed “a full 80% of consumers trust their banks”. However, FIs shouldn’t take that for granted, since 51% of customers feel their bank isn’t interested in earning them money, and 27% think they offer them unsuitable financial products.

Xavier Rebeuf believes the trust factor is one of the “biggest challenges”, because it’s not only a matter of technology but the processes banks have in place with their partners and the confidence they have in them.

Infographic: In EU, banks have a cost-to-income ratio (CIR) target of less than 50%, a challenge many struggle to meet.

A matter strategy

When it comes to delivering better customer value and cultivating customer confidence, identifying moments of truth and collaborating with trusted third parties are key. The bank’s strategy comes into play here – for example, are they focused on offering banking-as-a-service or banking-as-a-platform? Their role changes depending on the answer. But behind the scenes, certain aspects remain the same:

  • Need for accurate, real-time, and well-governed data.
  • API contracts designed from a business perspective, not a technical one.
  • Agile processing platform that enables a faster speed to market.
  • High availability, ensuring accessibility, data protection, and more.

In terms of data, the European Commission (EC) plays a role with frameworks like the Financial Data Access Regulation (FIDA), aiming to expand and better manage data sharing and foster fair competition. By setting transparent rules and encouraging an ecosystem approach, the playing field should level for all market participants.

There’s also information and communication technology (ICT) resilience to consider, the foundation of the Digital Operational Resilience Act (DORA). “It’s a very complex situation,” says Xavier Rebeuf. 

Technology holds the key

To move forward effectively and profitably, Xavier Rebeuf believes traditional banks should transition from a monolithic, process-oriented IT system to a more open, sustainable, and customer-focused one, with as low a total cost of ownership (TCO) as possible. On top of that, security by design is critical, helping engender trust. Additional considerations include a:

  • Brand-new, universal engagement platform from a customer and employee perspective that offers consumers an omnichannel journey.
  • Data-driven architecture, facilitating real-time insights and personalization of products and services.
  • Composable and microservices-based structure, supporting a fail-fast approach.
  • Innovative culture, harnessing the likes of artificial intelligence (AI) and blockchain to the maximum.

In short, it’s all about using technology to evolve and progress. Our research backs that up, with banks recording their “highest level of digital maturity” since launching our annual survey three years ago.

Indeed, 58% position themselves in the most advanced three categories: Pioneer (13%), Intermediate-Specialists (31%), and Intermediate Strategists (14%), up from 12%, 22%, and 11% respectively the year before. For banks that don’t fit into that 58%, the need to catch up is more pressing than ever.

AI is a “lynchpin of this new transformation agenda”, coupled with greater use of open finance application programming interfaces (APIs) and enhanced data anonymization capabilities. The cloud’s scalability, efficiency, and cost benefits also play a part.

For players developing a system from scratch, it’s possible to incorporate all of the above using a cloud-native approach. However, banks with legacy systems face challenges when modernizing existing platforms. In situations like that, Xavier Rebeuf talks about “go-to-cloud”, where the monolith is split into pieces based on “selected migration roadmaps”.

As a result, it’s possible to integrate new technologies without a total overhaul.

Picture: Traditional banks should change their IT system to a more open, sustainable, and customer-focused one, with the lowest TCO possible. © Getty Images
Traditional banks should change their IT system to a more open, sustainable, and customer-focused one, with the lowest TCO possible. © Getty Images

Roadmap to banking’s next frontier 

For banks, customer value and an exquisite experience are paramount. But time is short to deliver and innovate, and products must evolve faster than ever. Indeed, existing offerings will change and improve, and entirely new services like central bank digital currencies (CBDCs) will be introduced – a game-changer. 

Harnessing the power of technology is the way forward – a specific microservices approach from a business and operational perspective, where changes can be incremental (and quick). This model also fosters customer trust – a vital element – because security and compliance are embedded in the architecture of each microservice.

Watch the “Future of banking: from business to technology” session here and take a look at Sopra Banking Software’s Banking Platform for information on our secure by design, component-based, API-first solution.

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