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Traditional banks are facing an urgent challenge as consumer behaviour evolves and digital challengers drive and expedite this transformation.

The demand for utility-led banking services, flexible payment options, and mobile-first banking is on the rise, attributes that digital banks have successfully embraced while incumbents continue to struggle. To retain customers and foster post-pandemic growth, traditional banks must act swiftly, and they can do so by launching a speedboat.

The digital opportunity

Digital banks have swiftly changed the financial landscape. A report by Finbold shows that more than 290 challenger banks currently operate worldwide.

Convenience is the key driver of this growth, although better rates, real-time spending notifications and low transaction fees abroad are also attracting consumers - especially younger audiences. In the UK, almost half (46%) of Gen Z-ers, a demographic with growing purchasing power, have a digital bank account. As of 2022, 78% of adults in the U.S. prefer to bank via a mobile app or website. And Brazil already has more digital accounts than inhabitants.

This increased demand for digital may be challengers’ gain, but it risks being incumbent banks’ loss. Our report suggests that, over five years, a bank with a customer base of five million could see nearly one in three customers defect to a digital bank.

It’s clear incumbent players need to adapt to retain accounts. Navigating the digital revolution requires swift action and innovative strategies to retain customers and future-proof their operations.

The speed advantage

For incumbents, the key solution to this lies in launching a cost-effective speedboat.

Unlike traditional banks burdened by high costs and rigid processes, digital spin offs offer a nimble alternative, enabling quick adaptability to evolving consumer demands. Speedboats can be launched within months, remain unrestricted by geography and penetrate new markets. In doing so, speedboats enable incumbents to address current market demand, while retaining their core customer base for steady revenue.

There are many advantages to this approach, and speed to market is one of the biggest. A SaaS spinoff, powered by open APIs and an ecosystem of fintech partners, can be launched within just eight to 10 months of inception, and then start competing directly with challenger rivals.

Risk management

Launching a speedboat also helps banks manage the risk of digital transformation. Overhauling and updating IT systems inevitably leads to IT down-time and in today’s digital, always-on world, any lapse in service does great damage to a business’ reputation - and bottom line.

Speedboats sidestep the risk of outages by simplifying IT so it’s easy to update. By running SaaS for all functions and managing discrete functions separately, speedboats can quickly and seamlessly update their core infrastructure. Likewise, any issues that arise can be easily contained and the source instantly identified.

Running the technology on a modern, composable architecture allows for easy testing, greater flexibility and improved development speeds, so banks can give customers cutting-edge tools without cutting out service.

Cutting-edge ideas

Finally, a digital banking spinoff allows traditional banks to move flexibly and embrace innovation. Speedboats give banks the freedom to pioneer new technology and push the boundaries of banking.

By prioritising APIs, cloud technologies and mobile-first thinking, speedboats can deliver results quickly for incumbent players and prove that digital challengers don’t have a monopoly on the new and exciting.

Turning the tide

In the digital age, consumers seek banks that prioritise convenience, seamless experiences, and effective financial management tools. Digital challengers have excelled in meeting these expectations, leaving traditional banks grappling with evolving consumer needs and looming threats to their business.

By launching digital banking 'speedboats,' established financial institutions can swiftly embrace innovation, venture into new markets, and unlock additional revenue streams. While the financial landscape is shifting, traditional banks still have the power to change their trajectory and stay competitive.

To learn more about how banks can leverage their existing resources to introduce a cloud-native digital spinoff, download our report The case for launching a speedboat.

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