Expert opinions, FINANCE, FORECASTS

The bank of the future

To remain competitive in a rapidly changing world, a bank must put the customer first and rethink its IT strategy to successfully confront technology giants. This is where technology partnerships can be used, where services are sold under the brand of the marketer, not the developer (the so-called white-label products).

Banks have long been predicted to go away from the market. The ‘banking is necessary, banks are not’ phase originated all the way back in the 1990s, and this gloomy forecast has been increasingly reiterated in recent years. With the emergence of fintechs, which deliver better banking services directly to consumers, banks look unattractive and outdated. Technology giants such as Apple, Tencent and Alibaba are quickly conquering the areas that were previously associated with traditional financial institutions. That most banks were late for the digital feast is clear to everyone. However, despite the obvious problems, rumors about the death of banks are greatly exaggerated. If they have the nerve to make the right decisions, they will see a better tomorrow.

In our opinion, a successful bank of the future should rely on a foundation of long-term mutual benefit, with its clients at the center of its operations. The future belongs to banks that understand that growing customer demand for digital services cannot be met by simply inflating the ever-growing IT department. Increased customer expectations in terms of digital services and the numerous opportunities offered by new technology require an open business model and a clear focus on a bank’s main asset – customer service.

For most banks it is common to develop proprietary systems across a long price chain thus trying to use the opportunities and resolve the issues brought about by digitalization. As a matter of fact, most banks are basically developing the same technology and digital solutions. It is extremely inefficient and stupid when everybody is doing the same thing and even competing. Only one can be the best so why not benefit from the services of best suppliers instead of developing everything from scratch?

The old model is clearly unsustainable in the long term. Research shows that approximately 80% of annual IT budgets of European banks are spent exclusively on operating and maintaining inherited IT systems. This leaves them with very little resources for actual innovation and success in a fierce competition with financial technology companies and technology giants.

Our idea is that a bank of the future does not have to deal with developing large amounts of technology. A bank of the future provides its customers with guidance in the increasingly complex world of applications and smart financial technology solutions by picking and efficiently packing the best ones. This platform-based (or market) model will allow banks to build inexpensive, flexible and modern customer service. The flexibility of the open model will allow for easily offering new services without extreme overspending and complicating.

A bank’s main competence is to serve its customers. However, too often than not, the outdated IT infrastructure prevents banks from focusing on their clients. In the age of dominating flexible technologies and cloud-based solutions, it is strange to see that so many banks continue to rely on old mainframes.

When a bank transfers to an open model, it gets the advantage of flexibility and reduced expenses. At the same time, it creates a reliable foundation for long-term and mutually beneficial cooperation. The open platform-based model allows for abandoning the motivation to promote the bank’s own products and services (like many other banks do) and focus on the interests of clients, which, in our opinion, is a necessary condition for long-term success.

A bright future awaits those banks that dare abandon their own development of technology in favor of becoming open banks that operate as markets or platforms. And this future is not that far away given the appearance of cloud solutions.

In 2001, Saxo Bank signed an agreement on white-label partnership with a bank that will use our technology to improve customer service. We have repeatedly said that partnerships are the future of the financial sector. The development is not as fast as I expected, but it is definitely speeding up. More banks begin to understand that the obsolete IT infrastructure is their biggest enemy, and there is no need to develop their own technology anymore. This is too expensive, especially when regulations are being toughened, and the world is developing way too fast.

Banks have a good opportunity to compete with fintech and large technology companies because banks have the resources and many loyal clients, but this foundation might break if they are too determined to develop their own systems, products and solutions.

The winning banks will focus on customer service adapted to the needs of each client. It can only be achieved by acting in the best interest of the clients and by cooperating with specialized partners who will deliver separate components that will combine into unique and seamless customer service.

By Kim Fournais, Co-founder and Chief Executive Officer of Saxo Bank

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