The enterprise banking industry is seeing a revolution, especially surrounding its digital presence. However, banks often use antiquated infrastructure, making it difficult to innovate and deliver the technologies customers want.
Enter financial technology (FinTech) companies, which can help the banking industry rethink technology and innovation to better serve their customers while changing the conversation around what banking should be.
Digital banking offerings
Digital banking has grown from an innovative institutional practice to a consumer expectation. In the United States, digital banking’s focus traditionally has been about the front-end user experience for the mobile apps clients are using. Digital banking is now moving to the back-end, with a greater emphasis on data analytics. To do this, enterprise banks are looking at ways to collaborate with FinTech startups to add value to their services. Smaller credit unions, thrifts and community banks are struggling with the changing technologies, however.
“Mid-range banks have always been challenged by being too small to keep up with the deep investments required by technologies but too big to admit they’re going to just be a small bank,” explains Chris Skinner, a leading commentator and strategist on the financial markets. Mid-range banks have two approaches: either be a small bank with a very clear focus on some form of community capabilities, which may mean a physical or digital community, or derive a way to scale growth through an acquisition or collaboration strategy with someone who can provide the depth and breadth of services the bigger guys offer. The bottom line is that in order to attract and keep customers, smaller banks have to think about the digital offerings enterprise banks provide.
Promise of blockchain technology
Two or three years ago, there was a lot of excitement about how blockchain technology could revolutionize banking. Instead, it has been overhyped and has under delivered. However, blockchain still has the potential to be transformative. “A lot of the areas where blockchain was being debated around were actually big ticket, governmental and industry infrastructure issues rather than technological problems,” Skinner says. “For example, clearing a settlement is not really a good blockchain-use case because we don’t need real-time settlement in the financial market.”
Instead, Skinner predicts that blockchain’s future lies in intel and the ability for the banking industry to better share information.
A digital revolution
It’s predicted that by 2020 there will be 50 billion devices connecting to the internet, collectively known as the internet of things (IoT). This will result in trillions of very small, real-time transactions. Banks are not set up to meet the flood of transactions from a growing number of devices with banking functions.
According to Skinner, banks will have a choice. Either they’ll let all of that go to aggregated wallets run by the people like Apple, with Apple Pay, which gives away a huge chunk of their business as well as their clients’ touch and reach. Or they’ll have to rebuild what they’ve got to support that structure of trillions of transactions in very small amounts.
To stay current, the banking industry needs to change its mindset. “They’ve got to throw away the bank,” Skinner says. “What I mean by that is the bank that they’ve built and worked in for much of their career was built for the physical distribution of paper in a localized network focused on buildings and humans in the last century.”
By collaborating with FinTech vendors, banks can begin the process to reset that mindset to a digital global network in new and innovative ways.