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

Seven key steps to improving the digital customer experience

Country manager of UK and Ireland, Matthew Parker from Vonage, a global business cloud communications leader, shares his thoughts on the key lessons from the recent ‘Reimagining digital customer experience and brand engagement’ roundtable event

At the roundtable (written up here), the passion for customer experience came across from everyone, loud and clear. There were plenty of great statistics in there, too; I love stats. I wrote down seven things during the discussion, and these are my key takeaways.

Humans: We discussed the evolution of humans and how technology has to be intuitive. I think there is a link between humans and smart automation. Certainly, natural language processing and understanding sentiments in emails and messages is an area of investment and innovation. As another classic example, though, you want to know where your parcel is on its journey to your door. It’s a commonly asked, simple question that can be solved by automation. Tracking technology means that humans are not needed, but there are plenty of other things that do require human input and touch.

Trust: Someone mentioned trust. And a few people had different definitions of trust, but the two words I took away, linked to developing consumer trust and loyalty, were security and integrity.

The ecommerce journey:  This was another subject. There was a great stat on ecommerce growth: the pandemic spurred a 130% increase in ecommerce adoption. But looking at the ecommerce journey is so important, especially when working out where to remove friction.

Experimentation: Someone said: “Have a go and try digital transformation.” I love that. I attended an Amazon Web Services (AWS) summit a few years ago, and despite that digital transformation had been around for a long time, thousands of people there were wondering where to start. The speaker on stage, from AWS, said: “Just have a go, just have a go, pick your burning platform and just have a go.” In many ways, that’s still going on, which is great to hear.

Brand connection and value exchange: Together these make a potent combination. There has to be something for the customer in return for their data. 

The use of data: This final point wraps the session up nicely. Collecting data in itself is not necessarily a bad thing, but it has to have a context in terms of how an organisation will use the data. That’s the essential bit. Then there is the integration of that data in the customer journey. For example, we all get driven mad if we are on an interactive voice response for 20 minutes and then, having filled out the information, the human customer support person asks us the same questions.

This article, sponsored by Vonage, was first published on Raconteur in November 2021

Banking in the near future: optimising risk management and resilience in the digital age

Roundtable highlights: Technology may be the great enabler for banks and their customers, but to achieve holistic risk management, culture change and education are equally important


Charlotte Branfield, Head of operational resilience, Citi

Andrea Brody, Chief marketing officer, Riskonnect

Marc Leaver, European chief operating officer, Standard Chartered Bank

Jason Maude, Chief technology advocate, Starling Bank

Ralph Nash, Chief compliance officer, HSBC UK

Suresh Viswanathan, Chief operating officer, TSB

Future of banking (Expect Best from Pexels)

Q What is the current state of personalisation in banking in the UK and around the world?

Ralph Nash Last year’s events have accelerated some of the trends already emerging in banking. These include the increased use of automation and digitalisation and the concept of “the bank in your pocket”. Branch networks will remain important, but increasingly we see demand-led interaction around digital and that’s something we need to satisfy. A greater digital focus creates both risk and opportunity from a stability and resilience perspective. There are some risks, both technical and ethical, but if we get it right, it could be a win-win scenario for the bank and the customer. We are at an exciting juncture.

“Driven by demand for seamless customer experience and fintech partnerships, banks will become hubs where products can be plugged in and out. That’s pretty revolutionary”
Charlotte Branfield

Jason Maude In the next decade, affording customers immediate and secure access to their data in the same way they have access to their money will become a requirement, rather than a “nice to have”. If you, as a bank, cannot offer that connectivity or application programming interface (API) capability, you will be like a town the railroad missed out, and you will weaken and die. Customers, including small and medium-sized enterprises, are not going to do business with a bank that relies on paper processes.

Charlotte Branfield What makes a good bank is how fast they reach the customer, to solve their problems and provide financial services conveniently, efficiently and responsively. Therefore, the concept of a bank is evolving from the traditional bricks-and-mortar bank to an “embedded finance” model. Driven by the demand for high-quality seamless customer experience and fintech partnerships, banks will become hubs where products can be plugged in and out. When you think about banks’ business models, that’s pretty revolutionary. The whole system is changing and it’s an exciting time to be involved in operational resilience.

Marc Leaver I agree that we are at an inflexion point in banking: if we don’t change the traditional way of delivering products and services to clients, we will be redundant in the digital age. We see ourselves as a bank that connects clients, products and markets. To do this we utilise digital offerings to tap into the digital needs of our clients. Three pillars to build this: innovative partnerships exploring disruptive business models; investment in fintechs; and, arguably the most challenging element, greater internal innovation.

Suresh Viswanathan The definition of where a bank starts and finishes is transforming. Previously we have been constrained by physical infrastructure and analogue systems. As we emerge from a post-pandemic world, the march to digital is inevitable. However, as we move towards a world driven by open banking and APIs, you lose control of when demand hits. People trust banks and I think now it is obligatory to ensure we deliver more value to customers than just a current account, a loan, a mortgage and a card. It’s a unique position to be custodians of customer data and leverage that trust, and it means we, as banks, can offer them more connectivity.

Andrea Brody We talk with our financial services customers all the time. The same topics are discussed; the drive for greater automation and data analytics is taking centre stage because of the need for connectivity. It’s imperative to leverage technology, but improved risk management in corporate strategy is required and the pandemic has exacerbated the need for better reporting.

Q What are banks’ biggest operational challenges in 2021 and what problems are on the horizon?
 The last year emphasised the importance of banks as a transmission mechanism of government policy to support individuals and businesses through the coronavirus crisis. We have effectively done years of lending in a few months, at an unprecedented level. Managing the exit from government support schemes will be a significant operational challenge for HSBC and the industry, this year and next, particularly in the UK. Customers’ payment holidays will end, but some will be unable to resume repayment on their debt. Historically banks have been worried about cash and keys, and now they should treat data and systems as crown jewels and focus on building resilience for the latter. The operating model and technologies need to support that, as well as meeting regulatory and societal expectations.

JM To keep pace with those expectations, it’s essential to have the architecture to operate faster. It’s often thought that for banks there is a seesaw-like balance between security and reliability on the one side and speed of delivery on the other. At Starling Bank, we have constructed a system that makes these two things mutually reinforcing. We rapidly deploy feature changes, new products and services, and seek bugs daily to increase resilience. This system will be vital as we look to enter new markets globally in 2021.

“We are marching to the cloud. As networks become smarter and 5G is more widespread, we can push more content into the hands of devices customers hold”
Suresh Viswanathan

ML Standard Chartered Bank has moved to a cloud-first strategy and we are looking to shift our core banking platform into the cloud by 2025, subject to regulatory approvals. Regulators are beginning to become more comfortable with banks’ evolution to digital and familiar with safe data storage. Certainly, the strides made by Starling Bank and others are fabulous for the industry and the customers we serve. Partnerships with technology specialists are critical to our strategy because we know clunky platforms and traditional banking methods are not sustainable, frankly.

SV Today, 90 per cent of TSB’s customer services are digital, as is 70 per cent of our sales. In terms of operational resilience, it is very important to have a multichannel approach because you want to comfort and support customers and be readily available. We are marching to the cloud and, as networks become much smarter and 5G is more widespread, we can push more content through the pipes into the hands of devices customers hold. That capability gives us the ability to educate customers and improve financial literacy. A key imperative, though, is to become more holistic in our management of risk.

CB I agree that banks need to embrace holistic risk management and think about processes differently. At Citi, our priorities lie in better understanding our clients’ experience of using our services and improving upon it. As an industry, we have to move away from the mindset that cybersecurity, for example, is only a tech expert’s responsibility. That approach causes a disconnect concerning operational risk because, in today’s digital economy, the fundamental commodities at risk are trust, data and connectivity, not just money. If we want to manage cyber risk properly, we are going to have to have far greater engagement from the client relationship managers, the user experience designers, and the product sales and development teams, and not just within banking, but in the public sector as well.

AB Considering the customer’s viewpoint is a perfect way to look at risk holistically. Every department in a bank is responsible for risk. Thus, silos need to be broken and communication between the different functions improved, and this can now be enabled by technology.

Q How can technology help optimise risk management?
RN Increasingly, we feel there are some challenges in using data from an ethical perspective. How do we ensure we don’t end up with unintended consequences due to modelling our customers’ data? For instance, if we become more sophisticated at modelling the propensity of a customer to commit financial crime, or pose a compliance risk, do we end up inadvertently becoming less inclusive and less able to target the unbanked at a time when probably we should be trying to do the complete opposite? There is also the question of staff surveillance; what is legal but fails on the “creepiness” test?

ML The debate about vaccine passports has dominated the news recently, showing that the ethics of handling customer data is no longer a horizon risk. As banks, we are grappling with the same challenges: we know if we use data-driven insights, we can make better business decisions and we can improve the way we serve our clients. But what is the tipping point? While customer data protection has long been part of the design of a bank’s processes and systems, with increasing digitalisation, data management best practice needs to be embedded into its DNA. Ultimately, the customer’s data is a gift and we must keep it secure.

JM We think of cybercriminals as competitors who are trying to steal our business, so we combat them by making it too expensive for them to spend time trying to hack our systems. A security bug is a big draw because it allows you to hit multiple people all at once and in banks no one has coded everything from scratch. Chaos engineering is going to become more prevalent in our industry. We deliberately attack our systems in a controlled manner to test and prove we are resilient.

SV There is a lot of artificial intelligence (AI) and machine learning in the banking industry, though some applications are more mature than others. Smart partnerships that drive innovation will be vital to delivering super specialisation, for example if you want to optimise the noise-to-signal ratio in ATM fraud. It’s about adding value to the customer, but not at the cost of impacting operational resilience. For this reason, we need to be bold, be innovative, fail fast and move on.

CB There are so many shiny new tech toys and it’s easy to think a bank has to have the latest gadgets and be deploying the latest piece of AI, but without actually understanding why. It’s critical to go back to basics and back to your first principles. Ask yourself, “What benefit is this bringing to either the business or my customers?” It’s an exciting time to be involved in resilience and risk management because it means looking carefully at your organisational structure and culture.

AB It is indeed an exciting time and there is clearly a real focus on operational resilience in the digital age from those in the financial services space. There are many challenges, but a bank’s technology stack must support the desired outcomes. It will be fascinating to see how the ethics and compliance concerns evolve in the coming years.

This article was originally published in The Times, as part of Raconteur’s Future of Banking report, in April 2021. The videos for the roundtable session, which I moderated, can be accessed here