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The Economist Impact looks into what traditional banks can learn from their digital-only challengers and remain front-of-mind for modern consumers.

According to a recent McKinsey study, Covid-19 accelerated the digitisation of customer interaction by an average of three years and the share of digital offerings by seven years. But the growth of fintechs does not necessarily represent bad news for traditional banks, as many of these companies are not their direct competitors.

Digital fatigue stems from banks’ setbacks and disappointments as they pursue their transformation strategies. This sense of fatigue is common among companies that have a very urgent need to change but have not been built for it.

Incumbents find themselves in a permanent state of digital transformation, anchored by their outdated legacy IT systems, and unable to keep up with consumer demands. So what can they learn from their digital counterparts in their race to digitisation? What can they do to compete in a digital world while avoiding being bogged down by their legacy stack?

In a recent article, Economist Impact explores three strategic approaches that some of the biggest global banks are deploying in order to become more agile and consumer centric:

Balancing front-end innovation with digitisation of the back end

Front-end solutions allow companies to capture data on customer behaviours, while back-end technologies are needed to make decisions based on this data. Traditional banks are often unable to extract insights from the large amounts of data they store in outdated back-end legacy systems and that’s because most banks prefer to accelerate their front-end digital transformation instead of investing in modernising back-end systems. However front-only strategies are a temporary fix and without integration between the front end and back end, companies are not set up well enough to realise the cost and efficiency savings that make a digital-first strategy so attractive.

Developing subsidiary digital-only alternatives to serve niche markets

Yes, it’s the speedboats. In order to keep up and go to market faster with a new set of product offerings, several of the largest incumbent banks have set up their own digital-only banks. These banks are able to capitalise on their incumbent banks’ existing customer base, putting them ahead of newly created enterprises. However, this strategy does not replace the need to modernise the core banking infrastructures of parent companies. By setting up a new company, traditional banks might be able to change the look and the feel but this won’t change the DNA of the company and won’t necessarily accelerate achieving their digital transformation goals.

Exploring new avenues for growth through the creation of banking ecosystems

An ecosystem approach involves offering services beyond banking focusing on different aspects of individuals’ lives such as housing, retail, mobility, and wellbeing. Several banks have taken note and are looking for ways to transform customer interactions into hyper-personalised digital experiences. Bundling financial services with other non-financial services allows banks to expand their offer and gain a better understanding of their customers’ behaviours and preferences. Using their services to enable digital ecosystems allows banks to multiply their interactions with customers and develop new products that adapt to their users changing preferences.

Digital transformation strategies should therefore aim to disrupt the way banks work, build partnerships with more agile tech start-ups or plug themselves into ecosystems that provide users with more holistic digital experiences. Read the full article, here.

For more information on this topic, revisit our recent article on agile transformations, here.

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