Overcoming the innovation gap curbing Australian banks’ digital ambitions
Written by Ashley Diffey, Head of APAC and Japan at Ping Identity
Customer expectations in banking have changed considerably over the past few years.
Lately, the trend is for customers to want to do everything from their app. Banks also increasingly favour their app as an authenticated channel and entry point into a broader range of systems and services.
To expand banking apps into a ‘one-stop shop’ experience, banks are leaning heavily on fintechs to be able to add new capabilities quickly and present them on one screen that customers can interact with.
In Australia, banks are either building their own – or incubating existing – fintechs, whose technologies can then be incorporated into banking channels.
Fintechs with middle- and back-office oriented services, such as those that can be bolted in to enhance customer experience, have proven particularly popular, according to research.
However, it is just as common to see banks use fintechs to power entirely new front-facing digital banking services and experiences. This is particularly the case for digital home loan applications and approvals. The mortgage market in Australia is highly competitive, and fintechs offer banks a way to gain a digital edge in the market that can be brought online faster than the bank developing such a capability by itself.
Innovating at the pace of business
Not every bank or financial institution in Australia has enjoyed success with incorporating fintech services into their existing offerings, however.
This isn’t due to lack of effort or desire, but because of the complexity of the banking market and of existing banking systems, which can hamper the ability to move quickly.
Financial services institutions (FSIs) want to be able to implement and test new capabilities that will keep their customers happy for the long term. They want to find new ways to engage customers, to optimise customer service functions, sunset legacy technology, and generally improve their brand value.
Customers want access to new digital services, too. And despite being relatively ‘sticky’ – it’s fairly well accepted that many customers are lax to change banks unless something catastrophic happens – millions of Australians do switch every year. That is a key motivator for banks to stay ahead of the (digital) innovation curve.
Banks do not want a lack of innovation and slow access to new digital services to be a reason for customers to switch, but it is clear some struggle to deliver on both counts.
Digital technologies are advancing faster than some organisations can implement or make them available for their customers. This is called the ‘innovation gap’. When it happens, the longer you take to innovate, the harder it gets to close the gap. When this innovation gap gets substantial enough, other organisations – fintechs, rival banks – seek to fill it.
For banks in this position, it’s critical to identify what is stopping innovation from occurring faster. In our experience, the blockers are often legacy technologies, as well as fear, uncertainty, and doubt about how introducing new digital technologies will impact the organisation’s core service delivery. Banking domain leaders value uptime and security above all else; while they may have ambitions to accelerate digital initiatives, this can’t be at the expense of availability and security.
There are legitimate questions about what impact a digital bolt-on will have on existing services. The worst-case scenario is that once new technology is implemented, it causes an issue and can’t be rolled back quickly enough to avoid downtime and customer anger.
It is possible to resolve this, but it requires a rethink on how innovation and financial technology can be incorporated in a way that meets emerging customer needs and appropriate risk thresholds.
The role of an orchestration platform
The fastest way for banks to reliably get new digital technologies into the market is to make use of an identity hub that can act as an orchestration solution for digital flows.
User experiences are visually mapped as flows, which are diagrams that show the paths users can take when completing a transaction. These flows help determine how many screens might be needed, the order in which they should appear, and the information required for each experience. They also logically stitch together all of the underpinning technology pieces that power each part of the experience.
Within an orchestration tool, the existing transaction journey is represented as one flow. A second flow can then be added that incorporates a new fintech function or tool. This new flow can be offered to a subset of users in an A-B test scenario. The bank can run multiple versions of a single transaction flow – with and without the new fintech capability incorporated into it – in parallel, and gain real-time feedback from a small subset of real customers that are exposed to the new experience.
This avoids the risks associated with a ‘big bang’ implementation of a new fintech capability.
Depending on the results, more customers can be moved to the new flow, or – if the fintech integration does not meet expectations – the subset of users can be moved back to the existing transaction flow.
The end goal is to enable the bank to move faster and with more confidence such that fintech technologies can be introduced safely and securely, without negatively impacting the existing customer experience. Banks that are successful in this space can outpace their competitors in bringing new digital capabilities to market.