Banks and financial services providers are under increasing pressure from digital native disruptors. Research estimates that global spending on digital transformation in financial services will top $164 billion by 2027.
In the US alone, it is forecast that more than 14% of the population will have at least one account with a digital native bank by 2025 - that’s more than 40 million people with accounts in banks like Chime, Varo or Koho (Canada) in the next three years.
While many see this as a problem with business models for legacy providers, there is a very clear case to be made that this is, at least partly, a technology problem. New providers are not providing richer or broader financial services - in fact, almost invariably it is a small subset of those from traditional providers.
But, they are gaining massive market share through faster and more exciting experiences at every touchpoint from onboarding onwards. These touchpoints are all digital and they match the expectations of a new digital world fed by experiences from Google, Facebook, Amazon and Apple.
Traditional financial services providers have invested in technology over the last 50 years - almost exclusively to automate their existing services and reduce costs. This has led to massive legacy debt with monolithic systems and siloed applications that are centred on bank processes, not on the customer experience.
These systems are not fit for the digital-first world in two major ways.
Firstly, they perform poorly under stress - this is evidenced by the widespread outages and failures at major banks during the last two years - as Covid restrictions have caused peak volumes for online and mobile banking.
Secondly, traditional providers take, on average, over two years to bring new digital services from conception to launch. There has been very little work done to create flexible technology platforms which allow for the launch of new, personalised services and features at the pace of the new market.
So is this the end of an era for traditional financial services? Or are there digital transformation strategies that can help them modernise and take back the lead? Based on our experience in a large number of successful modernisation projects, we think there are.