Why customer-owned banks must embrace next-gen banking technology to remain competitive
By Paul Apolony, General Manager Australia & New Zealand, Mambu
With more than 60 mutual banks and credit unions operating in Australia servicing more than 4 million customers, the customer-owned banking landscape is a diverse and important one. As scrutiny on the performance of the big banks continues, more consumers are beginning to look at customer-owned banks to understand if these smaller, more personal banks can meet their needs.
However, as with the wider banking and financial services industry, the customer-owned banking sector is facing a critical period as they stare down the barrel of a brand-new era of banking – the digital era – which is being shaped by four clear trends.
Four trends that are shaping the customer-owned bank sector in Australia
1. Changing customer demand
Across the board there is growing demand from consumers for more personalised products and services in banking, particularly among younger demographics. This hyper-personalisation that customers have now come to expect is enabled by agile cloud banking technology that leverages open APIs to bring together ‘best in breed’ financial and customer experience solutions.
Customers now expect their banks or financial service providers to meet all their financial needs quickly, seamlessly and conveniently, in an ‘omnichannel’ approach. Customer-owned banks are at risk of losing customers if they cannot evolve to offer additional services.
2. Increasing costs (of everything)
Rising inflation and the removal of government supports implemented during the pandemic is placing enormous financial pressure on individuals, businesses and banks alike. The increasing cost of compliance is already being felt by smaller banks in the customer-owned bank space, with many not able to afford to leverage industry changes such as the introduction of open banking due to the expense associated. In fact, nearly one in three Australian mid-tier credit unions, building societies and other institutions do not comply with open banking, and others that are compliant ‘on paper’ have systems that do not work in practice.
3. Greater focus on technology
Having the right technology infrastructure is vital if customer-owned banks are to keep pace with the rapidly changing financial services industry. The tech stack needs to support real-time decisions and transaction capabilities while being sufficiently agile and flexible to respond to changing consumer demands and market conditions.
Technology and business transformation is seen as the biggest opportunity to improve performance in the customer-owned bank sector.
A transition in architecture approach is also underway, moving from black box or modular based systems to composable, best of breed products.
4. Pivoting towards partnerships
The recent merger of Heritage Bank and People’s Choice Credit Union (PCCU) is an example of the customer-owned bank sector looking for ways to improve operating efficiency through consolidation or partnerships. Where there are limited resources to invest in technology and transformation there is a powerful business case for joining forces with like-minded organisations who share a common goal.
How can customer-owned banks capitalise on the digital era?
Maintaining the status quo – i.e. doing nothing – is no longer an option when it comes to core banking technology for banks of any size. Without replacing their core technology systems, customer-owned banks will soon (if not already) face regulatory and compliance challenges on all fronts and will also be left with significant gaps in the customer experience. Without updating the core, customer-owned banks run the risk of losing customers to digital challengers and the larger banks.
While some customer-owned banks will be in a position to invest in technology and replace their legacy core with a digital core, the heavy capital requirements involved may mean this will not be a feasible solution for all banks.
For customer-owned banks unable to shoulder the cost of a full digital transformation strategy on their own, an innovative approach to consider is the ‘shared utility model’.
In Australia, customer-owned banks generally have little to no customer crossover and are willing and able to work together. This means there is an opportunity to share costs on the digital path forward. An innovative approach to modernising the customer-owned bank sector is to engage with a third-party banking service provider who can administer next-gen core banking solutions and drive incremental change, over time.
Customer-owned banks working together have the opportunity to share the costs of new infrastructure and core banking services, for mutual benefit. If participating organisations maintain a focus on differentiating their services, the shared utility model can be an effective way for these banks to capitalise on the digital era without bearing the full financial impact or all of the risk.
Mambu and 4impact have a proprietary approach to help customer-owned banks transition from a traditional core platform to a new digital and cloud banking platform, incrementally. Mambu and 4impact are working with industry-leading, Australian-ready and digital solution providers to build an ecosystem of best-of-breed services pre-integrated to the Mambu platform.
Access the recent joint webinar with Mambu and 4impact and download the full report.
Come and meet the Mambu Australia team at the COBA (Customer-Owned Banking Association) Convention on the Gold Coast from 25-27 September 2022.
