Miniseries/Getty Images
Banks are revamping their digital strategies to make better use of technology at their companies.
AI and cloud tech are giving some banks an edge over competitors and enticing brand loyalty.
Outdated IT systems are hard to modernize, but they must be updated to meet current needs.
This article is part of “Build IT,” a series about digital tech and innovation trends that are disrupting industries.
It might be hard to remember the last time you visited a bank branch for a financial service. You likely conduct most of your banking via apps and websites, whether you’re paying bills, seeking help for a transaction, or checking your account balance after an expensive night out at your local cocktail bar.
In a 2023 GoBankingRates survey of US consumers, 59% of respondents said they would rather bank with smartphone applications, and 22% said they were more inclined to use banking websites. Meanwhile, 19% said they preferred physical branches and ATMs to online banking.
However, online banking is only a small part of the digital transformation underway in the sector as innovations such as AI-driven tools and cloud technology radically restyle the industry.
Traditional banks that ignore this reality risk losing loyal customers to digital banks that have emerged over the past few years, research suggests. A study from the banking-tech company 10x found that bad customer experience could result in banks losing 20% of their customers.
Experts told Insider that implementing a comprehensive digital strategy blending current and emerging technologies would put banks in a better position to maintain brand loyalty with customers and increase their competitive advantage.
Digital transformation is a must for banks
With online banking now the norm, digital transformation is no longer optional for banks. It’s a “necessity to remain competitive and meet customers’ evolving needs,” said Victoria Newton, the chief product officer of Engine by Starling Bank, the cloud-banking software used at Starling.
Victoria Newton, the chief product officer of Engine by Starling Bank.
Engine by Starling
But effective tech in the banking sector should go beyond apps and cloud migration, Newton said. She advised banks to rethink their technical operations and transform legacy, or outdated, IT systems to “continuously improve and adapt.”
“It’s integral to the longevity of banks. Legacy banking systems were not designed to provide the banking experience that people expect today,” she said. “Simply changing the customer channels without attacking the core and customer-servicing systems cannot deliver the customer experience or low cost to serve what digitally native banks can.”
Changes in customer habits and technological developments have made the banking sector “incredibly competitive,” Laura Merling, the chief transformation and operations officer of the financial-services provider Arvest Bank, said.
Banking firms must invest in digital tools such as cloud platforms and generative artificial intelligence to “meet customers where, when, and how they want to bank,” Merling added. Doing so will help banks benefit from additional revenue streams, improve the customer experience, and streamline operations, she said.
Jay Venkateswaran, the business-unit head of banking and financial services at the business-process-management firm WNS, said digital transformation strategies could also help banks lower transaction and operating costs.
Jay Venkateswaran, the business-unit head of banking and financial services at WNS.
WNS
Fintechs that have sprung up over the past decade are leveraging digital channels and offshoring to “ensure minimal operating costs,” he said, adding: “Accordingly, the operating cost for such firms has been far lower than traditional banks who continue to leverage branch and onshore call centers apart from digital channels.”
For example, many banks have replaced physical branches and call-center teams with live chats and FAQ website sections to reduce the overhead of their customer-support functions.
AI is automating banking transactions and processes
Banks are increasingly automating the banking experience by adopting AI tools and developing AI-generated products. For example, Capital One offers an AI-powered customer assistant called Eno. It detects and flags suspicious account activity, answers questions over text messages, makes suggestions to help improve customer spending habits, pays bills, and checks account balances.
Goldman Sachs is another major bank that sees massive potential in AI technology. In March, the firm announced that its software developers were exploring ways AI tools could help them write and test code automatically. The aim is to improve productivity in the bank’s software-development department. In the long run, it could help banks accelerate product development, further improving their competitive edge and satisfying evolving customer expectations.
Nigel Vaz, the CEO of Publicis Sapient.
Publicis Sapient
Nigel Vaz, the CEO of Publicis Sapient, a consultancy for digital business management and transformation, told Insider that AI could also provide protections such as cyberdefenses and fraud detection. Meanwhile, Venkateswaran views AI as a “powerful tool” for increasing the speed and efficiency of banking transactions, he said.
Cloud is powering the world’s biggest banks
From Morgan Stanley’s cloud transformation partnership with Microsoft to Bank of America saving $2 billion a year with its private cloud, banks are adopting cloud-computing infrastructure as they look to launch products and services that are fit for purpose in 2023.
This process involves transferring a company’s IT infrastructure, apps, and databases onto a cloud-computing server provided by platforms such as Amazon Web Services and Google Cloud.
Cloud adoption offers immense opportunities for banks. In an Economist Intelligence Unit survey, 72% of IT executives in the banking sector said they viewed cloud tech as a means to “achieve their business priorities.”
Laura Merling, the chief transformation and operations officer of Arvest Bank.
Arvest Bank
“By moving to the cloud, banks are able to take tightly tied legacy systems and technologies and make them more flexible for swapping out vendors, seamlessly connecting customers with back-office support functions and accessing all your data in one place for a single view of the customer,” Merling said.
As a result, banking customers and employees can view transactions in real time and deliver “a more seamless and personalized experience” for all stakeholders, she added.
Cloud technology is also accelerating innovation across the banking industry. Newton told Insider: “Cloud architectures are critical as they allow banks to be able to make the most of technologies like generative AI, innovative subscription services, or programs to help bolster loyalty at a channel level with customers.”
Over the next decade, Venkateswaran expects technological advancements aided by the cloud to “take center stage in the banking sector” and “enable banks to offer higher levels of security and control, thanks to the implementation of cutting-edge blockchain and AI solutions,” he said.
Unlocking new possibilities with Web3
The next iteration of the internet, known as Web3, will likely bring new possibilities to the banking industry. In particular, Web3 technologies such as cryptocurrencies, blockchains, smart contracts, and nonfungible tokens are “introducing a new security standard for financial interactions” as customers expect more reassurance in their financial dealings, Venkateswaran said.
He expects the metaverse, an immersive online world, to have a major impact.
“By creating virtual spaces for banking, this innovative approach promises to provide customers with personalized and immersive interactions like never before,” he said.
Vaz also believes that blockchain technology will transform the operations of banks, leading to “more secure, efficient, and transparent” banking transactions, he said, adding: “This could lead to cost savings and improved customer trust, thereby enhancing brand loyalty.”
Navigating vast digital changes
From AI to the metaverse, many technologies are available for banks looking to stay competitive and retain brand loyalty. But, of course, many of these technologies will be new to banks, and they might experience teething problems with adoption.
James Whybrow, the head of financial services at Software AG.
Software AG
For banks with legacy IT systems, pairing them with newer infrastructure might be challenging because they likely weren’t designed to handle today’s technical and security requirements.
But doing so is necessary for achieving “a holistic view of the business and its operational processes,” James Whybrow, the head of financial services at the German tech giant Software AG, said.
“Comprehensive integration should be the first consideration when embarking on a digital-transformation project, or else companies risk lost data and rendering some systems obsolete, unable to communicate with any new software,” he said.
Merling said most digital-transformation projects were unsuccessful because of “a lack of engagement, insufficient investment, and missed objectives.” To ensure digital-transformation projects succeed, Merling said banks must be communicative and set clear goals and responsibilities for everyone involved.
“Create opportunities for engagement across the business so it feels like ‘our’ transformation, not just ‘yours,'” Merling said. “And be sure to measure your success along the way.”