May 15, 2022
Hans Tesselaar, Executive Director at BIAN in FINANCIAL IT
In March, Lloyds Banking Group announced that it plans to shut another 60 high-street branches. The planned closures include 24 Lloyds Bank branches, 19 Bank of Scotland branches and 17 from the Halifax brand, bringing the total number of closures to 150 since June 2021.
This move from one of the UK’s largest banking groups is a prime example of how the industry is adapting to consumer trends and the shift to online banking. Statistics show that in 2007 around one-third of consumers used online banking. Today, more than 90% of consumers conduct most of their banking needs online.
This shift in behaviour has gradually changed the industry, but it is clear that the future of the financial services industry is digital. This has forced a seismic divide between those who prefer to bank online and those who don’t. It has also raised many questions about the readiness of our high-street banks when it comes to supporting this divide and future-proofing their services.
Going above and beyond
We’ve seen some banks providing hands-on support at their branches to support those unable to access digital services at home. This approach has helped to improve accessibility and increased education around digital initiatives. It has also encouraged increasingly more people to embrace digital change.
There is, however, still work to be done as not all consumers are willing or capable to make the leap. As banks continue to accelerate digital transformation projects, the closure of more high-street bank branches is inevitable. As a result, those who prefer to bank in person could be left in the dark when it comes to managing their finances.
Banks must make sure they continue to innovate while looking after the needs of every customer. This means providing offline support, such as the recent move for banks to share services to support the local community and the future of cash. As part of this pilot agreement, large banks across the UK will assess local needs every time a branch closes. This assessment could recommend a shared branch opens, an ATM installed, or a Post Office is upgraded. Banks will commit to delivering whatever recommended to support those customers who prefer to bank in person.
This is a promising initiative from the industry, but it must do all it can to move past the pilot stage. It must also continue to think outside of the box, innovate, and develop other initiatives aimed at those reluctant to embrace digital banking.
A balancing act
While it is critical to support those directly impacted by the branch closures, the industry must also use the shift in consumer behaviours as an opportunity to future-proof their services and improve the customer’s experience.
There are also some niche players who diversify themselves by advertising they have and keep their branches. In the United States, for instance, community banks unique selling points are their branches and knowing their – local – customers by name.
The extensive use of legacy technology within banks, however, means that the speed at which these established institutions can bring new services to life is often too slow and outdated. This challenge is also complicated by a lack of industry standards, meaning banks continue to be restricted by having to choose partners based on their language and the way they would work. This is instead of their functionality and the way they’re able to transform the bank.
To truly digitise banks, need to overcome these obstacles surrounding interoperability with a coreless banking model. This approach to transformation empowers banks to select the software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability and being constrained to those service providers that operate within their own technical language or messaging model.
By translating each proprietary message into one standard message model, communication between different organisations is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data.
In addition to taking a coreless approach to banking, banks must form an ecosystem alongside fintechs, service providers, and aggregators. This will help banks when it comes to the speed they can introduce new products.
An effective ecosystem strategy will make banks more relevant to their customers, providing an opportunity to drive better relationships and bigger wallet shares by providing the speed, scale and differentiated products that make the most of the opportunity presented by the significant shift to digital banking. If banks fail to take this approach, they will struggle to survive as consumers continue to demand new, digital services aligned to their needs.
A Customer-Driven Future
We anticipate that there will continue to be more branch closures across each and every high street. The industry must continue to adapt based on the needs of every single customer – no matter their demands. Failing to do so only means that customers will leave for a nimbler competitor who understands the customer both now and in the future.
This may seem like a hard weight to bear for many across the sector. But by taking a core banking approach to transformation, supported by an effective ecosystem – banks will benefit immensely. The success of the industry will continue to rely on a balance between maintaining previous methods of banking and the development of new and innovative services based on the needs of every consumer.