Recurring themes from the UK Banking Transformation Summit 2023

Banking technology is always on the move. The annual Banking Transformation Summit (BTS) is an opportunity to get some well-rounded perspective on innovation in the marketplace and current thinking at financial institutions across the UK.

Last month, our Customer Office team members - Ian Merlino, Head of Business Development and Colin Rankin, Sales Director attended the event. Here they share their recurring themes and key takeaways. 

As a digital banking solutions provider of more than 25 years standing, Sandstone is used to moving fast and innovating to keep pace with change. Listening to speakers at the BTS 2023 event, and talking with technology providers and financial institutions on the day, it’s clear that pace is only accelerating.

Personalisation and hyper personalisation

At Sandstone, we refer to the theory of “segment of one”, knowing that our customers must communicate to their end-users in the way that best suits their individual attitudes, behaviours and needs. Whatever the label, personalisation is one of the hallmarks of a customer-oriented business. It can also be a great differentiator. 

“No longer is it one-size-fits-all, with every person logging into their account or app and seeing the same menus and buttons for accounts, balances and transactions,” says Colin Rankin. “Now we’re heading towards identifying different segments in the marketplace – generations, life stages and demographics, and providing personalisation within those segments based on how they prefer to transact.”

“One day it might be customised down to individuals,” Rankin says. “For instance, when a customer opens their banking app, it might tell them exactly how much the financial institution (FI) will lend them today, without them even having to apply”.  

While great in theory, there are roadblocks in practice.

Personalisation for established financial institutions depends on access to, and the correlation of, data from multiple legacy systems. This can be fraught (see below). Even more so if the customer has accounts with different organisations – a loan with one FI, mortgage with another, insurance with a different organisation again. How do you bring all of that together and give customers consolidated data in a single view, and personalise from there? Open banking and open services are beginning to address that scenario, but they will take time to evolve and grow, and it means all financial institutions need to be onboard.

There’s also a challenging regulatory landscape to consider, including GDPR. Financial institutions must protect customer data while enabling customers to view, share and control access. As Ian Merlino points out, FIs have to be careful they’re not getting too close to individuals and their actions, or it can feel like ‘Big Brother’ is lurking. But on the other side, banks must be able to monitor accounts for irregular transactions to prevent potential fraud. It’s a fine balance that relies on consumer trust and confidence - and that can take time to build. 

Customer experience

Not surprisingly, there were numerous discussions at the BTS centred around UI, UX, interfaces and the dominance of mobile and hand-held devices. It’s a given that customers want to do their financial transactions in their channel of choice, interacting in ways that are familiar to them.

Digital channels is one area where the start-up FIs excel, providing the services that customers want through their mobile app. The traditional banks are still getting there.

Many younger cohorts such as Gen Z, the social media natives, are used to flicking to something new when they’re annoyed or bored. In the same way, it takes just one bad experience for a customer to switch financial provider, with onboarding today easier than ever. 

The legacy problem

As the BTS highlighted at the event, digital transformation is a journey, not a destination. Or as Rankin puts it, “It’s not so much where you want to be, as where you’re starting from, and how to get from that place to where you want to be.” In our conversations with financial institutions, we’re often painting a rosy picture of how the front-end could work with all their digital services. But legacy spaghetti can be a major stumbling block.

Rankin adds, “Data is often held on many different legacy platforms, many of which are 30 or 40 years old. These core banking platforms were never designed to be open, or accessible across multiple channels. So consolidating data and then pulling the information back can be tricky.” 

There’s also a lot of manual work still happening behind the scenes. According to Merlino, “Although the process might not look broken from the customer’s point of view, it may take days to complete an action, involving multiple staff and increasing the cost-to-serve.” When the FIs look at their legacy systems and decide where to spend their budgets to simplify and streamline processes, it’s usually a trade-off. They may consider cutting features that aren’t used by the majority of customers. But those features may bring in a lot of revenue for the bank from the customers that do use them.

For example, a building society might want to phase out passbooks. However, passbooks are preferred by many older customers, and these are often the customers with significant savings deposits. “There are little nuances around the marketplace that make it difficult to automate everything, and have a holistic view,” comments Rankin.

Where does cloud fit into all this? A “flavour of the day” topic at the BTS, Merlino says cloud is seen as the path for FIs to move away from the legacy problem that’s currently holding them back. He adds, “it’s not just a matter of lifting your current infrastructure and dropping it in the cloud. That won’t guarantee cost savings or efficiencies over time. Yes, you may have escaped the infrastructure bill, but you're still paying for hosting, maintenance, and management”. The solution lies in shifting to the cloud AND using proper native cloud components. Only then can you scale, be robust and flexible and get to a point where you can start to use agile methodologies.

What do we mean by agile? Working with FIs today, Sandstone focuses on ensuring they have agile and iterative DevOp methodologies, which enable them to adapt to change, experiment and get to market quickly. Agile infrastructures rely on a pattern of continuous improvement. Even if an FI is mapping out a five or seven-year plan, they still need to be able to pivot to new business needs and customer requirements. “It’s constant, incremental change - little and often, all the time,” Rankin says. It’s not about finishing one project, and then embarking on another that will be available in two years’ time. “Customers won’t wait for that,” Rankin says. 

AI, ML, and data

In the last five years, there have been more than 100 new banking licences granted in the UK. Every FI is looking to make more money or save more money - or both - as competition increases. By changing operating models to use more machine learning (ML), automation and AI services, FIs can drive greater efficiencies in multiple areas. The models and algorithms that power AI will take online banking services to the next level. But again, the question is: how do you invest to get most bang for your buck?

As Merlino explains, most FIs are becoming more comfortable using AI and ML for certain uses cases – fraud detection and prevention are no brainers. Or for simple customer queries and questions, using AI to answer those quickly and efficiently reduces cost to serve. 

The banks are still very apprehensive about AI and client-facing applications for more complex situations - the trust isn’t there yet, Merlino says. There’s still too much risk of frustration with automated systems; and negative client experiences, especially relating to nuanced or emotionally charged conversations.

We have a long way to go before we’re exploiting the full potential of these technologies. Longer term, it’s inevitable that AI will provide a good service in certain situations, within certain parameters. But there will always be questions that require human understanding, a more delicate touch and the ability to pivot. So there will always be a mixture of AI and human interaction. “I don't think it will ever be all of one or the other,” Rankin says.

Overall, it was gratifying to see that the direction we’re already taking with client projects is on track, if not well ahead of the curve. Get in touch to find out how we can support with your digital transformation journey.

Published July 2023