Australians need banking, not banks
By Ross Mason, Founder, MuleSoft
Banking in today’s hyper-connected world requires a customer-centric approach. Consumers want to be able to bank where they want, when they want and how they want. This has given rise to nimble fintechs, challenger banks, and other non-traditional financial institutions that are challenging the role banks play in personal finance. In fact, Bain & Company found that 65 per cent of Amazon Prime members in the U.S. would be willing to try a free online bank account offered by Amazon. In addition, 37 per cent of consumers that don’t shop on Amazon would be willing to try banking services from them.
As we have seen through the Banking Royal Commission, the sector’s future is going to be defined by consumers. The current reality, though, is banks don’t have many touchpoints with consumers and instead provide more of a utility service: consumers log-on to check their balances weekly, pay bills through BPAY monthly, or get their mortgages automatically debited.
The rise of the gig economy further solidifies this new reality: just as people want more control over how they work, they also want more control over how they manage their finances. Enter money transfer apps like PayPal, which give consumers a more convenient way to interact with their money. In addition, the Bank of New Zealand has introduced new payment options and additional online banking functions, including adding both ApplePay and Google Pay to its offering.
As the race towards better customer experience wages on, banks will need to take a different approach in order to thrive in this new age. It starts with first understanding what their role will be and how technology will fit in. To quote Bill Gates, “Banking is necessary, banks are not.” With banking becoming less transactional and more of a personal experience, banks’ roles will shift towards becoming curators of services rather than sole providers owning the customer journey end-to-end.
Technology’s impact on banks
With disruptive technologies continuously changing customer expectations, financial institutions are under pressure to modernize their outdated IT systems to keep up with more nimble competitors. Yet, research from MuleSoft’s Connectivity Benchmark Report found that legacy infrastructure and systems were the most frequently reported challenge to digital transformation initiatives. Furthermore, 59 per cent of IT leaders say their legacy infrastructure makes it hard to introduce new technologies like artificial intelligence (AI), big data and the Internet of Things (IoT).
To overcome these integration challenges and meet customer expectations, banks must look beyond merely digitising existing services and instead establish open banking platforms that provide customers with the connected experiences they’re after. Open banking, which sets data-sharing standards between banks and trusted third-party developers, is set to launch in Australia this July. For banks to compete effectively in the digital era, they need to use open APIs to unlock their core systems and open up their data – such as customer, transaction and behavioural data – to internal and external developers to leverage.
To do so effectively, banks will need to build an application network, where their apps, data and devices are connected via APIs and can be plugged in and out quickly to respond to market conditions. Yet when recently asked about the extent to which their organisation provides a connected user experience, under 35 per cent of IT respondents from financial institutions said their organisation offered a completely connected experience across all channels. There is a lot of work to be done.
A new role for banks
Some banks are starting to shift away from the old method of operating by partnering with fintechs to build ecosystems of products and services that customers can pick and choose from. For example, fintech lender Tic:Toc is partnering with some of Australia’s largest banks to empower them to automate mortgage assessments. Tic:Toc’s API approach to connecting the various systems required for evaluating loan applicants has enabled it to reduce the home loan processing time down to a matter of minutes compared to the industry average of 22 days.
In creating an open ecosystem through partnerships with fintechs, banks can drive new sources of revenue, offer customers more holistic experiences and compete more effectively. It’s a symbiotic partnership that allows banks to reach new demographics and potential customers by plugging into fintechs’ ecosystems. Fintechs also stand to benefit from partnering with experienced providers to offer consumers a more complete service that ultimately gives people greater control over how they want to bank.
With nimble fintech companies offering more transparent and efficient banking solutions, consumers are moving further away from their reliance on banks to be able to manage and move money. Open banking presents a pressing opportunity for banks to shift from how they have been using customer data – that is, to sell them more services – to ultimately give customers more power over their data and ultimately more choice over how they bank. Beginning with unbundling their legacy systems with APIs, banks have to create a banking-as-a-platform service to offer customers more personalized insights and journeys.
Ross Mason is the founder of MuleSoft, provider of the leading platform for building application networks.