Future of banking: what next-generation operating models are required?

Composability, partnerships with fintechs, and meeting customers on their preferred channel are all vital, according to a roundtable of experts. Watch the full roundtable here

Financial services operators were, according to ServiceNow’s Keith Pearson, “the white knights of the pandemic”. They came to the rescue of people and businesses stricken by the fallout of the coronavirus crisis. But, with the global economy in peril, they must saddle up again. 

And yet, despite being saviours for many in the last two-and-a-half years, there is an incredible demand for banks, in particular, to evolve rapidly and offer personalised services and an omnichannel customer experience to rival the best in other industries. 

To gallop along with change, steer clear of disruption, and continue to fight the good fight, those wishing to lead the way in the future of banking must partner with fintech experts, argues Pearson, AVP of financial services industry go to market at ServiceNow. 

He points to a recent Gartner report, 2022 CIO Agenda: A Banking and Investment Perspective, which captures the challenge. “We are in a time of indefinite volatility, making it difficult for banks to plan for an indefinite future,” it reads. “Mastering business composability prepares banks to maximise business value regardless of ongoing uncertainty.” 

Fay Wood, head of retail strategy at Natwest, sets the scene. “There is a looming cost-of-living crisis after unprecedented events – a global pandemic and a war in Europe – that few would have predicted three years ago,” she says. “Money management and supporting customers with budgeting and financial tools will be critical for the industry. As a result, these services are becoming much more embedded in people’s lives.”

Increased duty of care 

Concurrently, regulators argue there is a greater responsibility on regulated firms to hold customers’ hands, metaphorically, and support them. Interestingly, some new financial terrains, whether it’s cryptocurrencies or buy now, pay later products, for instance, are not yet regulated. 

Indeed, the Financial Conduct Authority’s final regulations on its new Consumer Duty will be available at the end of July and, following consultation, appear likely to force regulated firms to deliver “the best outcomes” for retail clients, says Wood. As an example of how NatWest better educates customers, the recently acquired Rooster Money app, with a pre-paid pocket-money card for those aged three and up, is currently free to access for the bank’s 17 million customers. “We wanted to do more for children,” she adds, highlighting the role acquisition is playing in the future of banking. 

Metro Bank’s David Thomasson, managing director of digital and products, concurs that banks have to support customers better, whether online or offline, and build on the trust generated in the last two-and-a-half years. “Now, more so than before, they need to talk to somebody at the bank,” he says. “While digital is clearly becoming more important, seeing someone face to face is also vital. Our data shows that customers might not use a Metro Bank store for two months or even two years, but knowing that there is someone in a trusted environment nearby who can speak to you at a time that suits you is crucial.” 

You must be prepared to think differently about your organisation’s structure and operating model and follow that through with your technology investment

It is not just individuals who crave that support. Thomasson states that 80% of Metro Bank’s business customers gained since the start of the pandemic operate within an eight-mile radius of a branch. “This shows the importance of the bank within a community,” he continues. “A service-led proposition and being there for communities will differentiate financial services organisations going forward.” 

Banking in the metaverse 

The “big difference” identified by Nadya Hijazi, global head of wholesale digital channels at HSBC, is that banks have to go to customers, not vice versa. In March, HSBC revealed it had bought a plot of virtual real estate in The Sandbox, an online gaming space, marking the bank’s first significant foray into the metaverse. She says: “It’s about ensuring your services are available wherever your customer wants to be, whether that’s in the metaverse or using WeChat in China. You must embed your services and be at the heart of the community.” 

Banks can’t afford to ease up on innovation, and a mindset change is required to develop products and services that don’t need to be fixed, per se, Hijazi warns. “When you’ve got a revenue stream, there is no driver for change,” she says. “Usually, things change because something is not working. But now it’s dangerous to be complacent because if you don’t keep improving, then you will lose connectivity with customers.” 

This concept chimes with Jasmeet Narang, chief transformation officer and head of operations at Santander UK. “Customers want choice and convenience, not just a load of off-the-shelf products,” he says. “The old stack-them-high and sell-them-cheap approach doesn’t work anymore. Instead, you have to understand customer needs, and most critically, you have to have that human touch.” 

He stresses the importance of collaborating across the business and “organising design around the customer”, using their predicted wants and requirements as the guiding star, and justification, for any innovation. “Otherwise, you’ll always function in silos.” However, humans must be involved in the service, whatever technology is used. “It is those touch points with customers that are gold dust and will define the winners and the losers in the future of banking.” 

Culture conundrum and composability 

Narang says leaders have to activate a cultural change to drive innovation. “Top-down sponsorship is essential,” he adds. “Once you have that and a clear, long-term structure, other things follow. Also, you have got to be true to your convictions. The world will throw pandemics and wars at you, and at times you might have to be agile and flexible, but those that will succeed will keep the overall destination in mind.” 

Yorkshire Building Society’s chief commercial officer, David Morris, believes the “evolution of banking distribution models is going to have quite pronounced effects, whether that’s embedded finance or banking in the metaverse, among many examples. New entrants, whether challenger banks or technology companies, will find ways of competing in the value chain in different ways. Therefore, that’s going to have big implications for business models.” 

He continues: “How do you make sure you’re not left behind or not investing in the wrong technology? And how do you build that in an environment where you have to handle legacy infrastructure, macroeconomic uncertainty, and evolving regulations? Running an enterprise and building something different is incredibly difficult, and requires careful prioritisation and creative solution design.” 

ServiceNow’s Pearson counters that bold banking leaders who look to partner with fintechs, use the agility of the cloud, and are willing to rip up old plans will triumph. “You must be prepared to think differently about your organisation’s structure and operating model and follow that through with your technology investment.” 

He suggests the quicker banks can focus on building “composability” – essentially, a system design principle that deals with the interoperability of components – at scale, the better. “That’s what the future of banking will look and feel like,” Pearson concludes.

To find out how ServiceNow can enable digital transformation and improve experiences in your organisation, visit your.servicenow.com/businessinsights

This article was first published in Raconteur’s Future of Fintech report in June 2022

Published by

Oliver Pickup

Multi-award-winning writer, content editor, ghostwriter, and TV and radio commentator (and occasional illustrator), specialising in technology, blockchain, startups, business, sport and culture. Founder of Pickup Media Limited. Interviewer of death row prisoners, legendary athletes, influential leaders, tech trendsetters, and cultural pioneers. By-lined in every English newspaper. Contributor to dozens of multinational publications.

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