Banking on Change: How Traditional Banks Must Adapt or Fail in the Digital Era
Having a recent frustrating experience with my business banking provider made me question whether traditional banks are truly prepared to navigate the evolving landscape of banking and financial services. Which banks will ride the wave of change and flourish, and which will falter or fail?
““While traditional banks have been convenient one-stop shops, many haven’t evolved their products in a way that matches the tech-driven pace of change in other industries.””
I spent 50 minutes in a branch waiting for a ‘letter of authorization’ to be printed, as it couldn’t be done through their digital platform, online customer service, or smaller branches. After complaining, I was finally assisted by someone who printed a four-page ‘Customer Branch Request Form’ that needed to be stamped and signed, followed by the actual letter which also required a manager’s stamp and signature.
It’s evident that many banks are failing to:
Deliver value beyond traditional services
Attract digital-savvy talent
Foster a culture of innovation and experimentation
To tackle these issues, banks can refactor their organisational design, implement Agile HR services, build software-enabled operations for data-driven decision-making, and cultivate enterprise-wide business agility.
Despite these strategies, significant challenges remain. This article explores the challenges faced by financial institutions and the barriers to adopting business agility.
Challenges Faced by Financial Institutions
Rapid Technological Evolution: Financial institutions need to continuously update their platforms and applications to keep pace with evolving customer preferences and technological advancements.
Compliance: Adhering to regulations such as AML & CFT regulations in The UAE and SAMA in Saudi Arabia*
Market Conditions: Sustaining revenue growth and maintaining market share in a competitive landscape.
Legacy Systems: Managing and integrating ageing IT infrastructure that requires significant maintenance and upgrades.
Mergers and Acquisitions: Integrating disparate IT systems from acquired smaller banks or FinTech companies.
Barriers to Agile Adoption
1. Preference for Predictability: The financial sector values predictability in costs and outcomes, making the flexibility of Agile business operations less appealing.
2. Distributed Teams: Coordinating development across segregated, often globally distributed teams.
3. Risk Aversion: High stakes in financial software where even small errors can lead to significant financial losses.
4. Regulatory Compliance: Extensive documentation and formal enterprise change control procedures for auditing purposes.
5. Complex Systems: Financial systems often interface with multiple peripheral systems, complicating Agile adoption.
Addressing these fundamental aspects and phasing in a sensitively managed operational restructure can help BFSI organisations, particularly incumbents, tackle these challenges and barriers.
Encumbered Incumbents such as America’s First Republic Bank, which collapsed in 2023, typically exhibit traits such as large market leadership, legacy assets, traditional value chains, outdated processes, and entrenched organisational behaviour.
Lean Start-ups like WIO in the UAE, Monzo in the UK, and Revolut are characterised by their speed, agility, culture of experimentation, and willingness to take risks.
Lean Incumbents such as First Direct (HSBC) and PayPal have evolved their traditional business practices, building digital agility with:
Leadership development
Data-driven decision making
Seamless collaboration
Customer value
Talent diversity
Case Studies
In conclusion, traditional banks must embrace digital transformation to stay relevant in a rapidly evolving financial landscape. They must rethink their organisational structures, cultivate a culture of innovation, and leverage technology to provide exceptional value to their customers. The ones that succeed will be those that can adapt to change swiftly and effectively, leaving behind outdated practices and embracing a more agile, customer-centric approach. Those that fail to evolve may find themselves unable to compete with more nimble, tech-savvy newcomers, risking obsolescence in an increasingly digital world.
*Saudi Arabia: Saudi Arabian Monetary Authority (SAMA): The central bank of Saudi Arabia, responsible for issuing banking licences and regulating financial institutions.
The United Arab Emirates: Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT): Regulations requiring banks to implement robust AML/CFT measures in line with FATF (Financial Action Task Force) recommendations.
References:
‘The Future of banks: A $20 trillion breakup opportunity’