There are around 90,000 finance corporations in the UK, and the banking competition is increasing on a weekly basis, with new financial technology companies changing the banking landscape in an unprecedented way.
The UK is the leader in fintech and open banking processes disrupting the financial and banking world. It’s also the first in the world to kick off a regulatory fintech sandbox to make it much easier to develop and implement new products and services.
Around 90% of fintechs are using open banking for current services and 81% for enabling new services.
UK’s high street banking has been so dominated by HSBC, Barclays, Lloyds, and NatWest.
However, with the rise of new technologies, the government decided to make it easier for new banks to enter the market.
Of course, this wouldn’t make any sense if customers weren’t allowed to switch banks with little fuss, which was also implemented.
The government’s stance is also that although around 90% of UK adults now use online banking services, there still has to be access to cash and banking services both now and in the future because technology isn’t for everyone.
That being said, what are the high street banks doing in regards to digital banking? What was their strategy in recent years, and what will be done in the future?
1. Integration of New Technologies
Amazingly, fintech was the UK’s top-performing sector in recent years, and there are no signs of stopping. Namely, 26p in every £1 of equity investment secured in the first quarter of 2022 was going to fintech companies!
High street banks are driving the demand for third-party integration services, and UK banks are on the lookout for tech companies offering commercial off-the-shelf products through customized engagements.
Banks also have an extremely high demand for AI, blockchain, robotics, cloud, APIs, and cybersecurity, and they integrate these technologies into their current systems.
According to Insider Intelligence, tech spending is rising more than ever, with an estimated £13 billion in 2022, a YoY growth of almost 19%.
It’s now clear that modernization can’t be a long-term objective. It has to be done ASAP!
One of the main reasons why deploying many of these advanced technologies is difficult is because finding and molding a modernized workforce is challenging. Researchers found that 40% of financial organization execs voiced that their workforce wasn’t ready to adapt or reskill. Even taking on new roles was difficult for them.
On the other side, employing new workers with niche technical abilities is more demanding than ever because of so much demand from companies, banks, organizations, and even the government.
That’s why, in many cases, companies have started to partner with third-party providers to help in upskilling internal teams.
UK’s high street banks are desperately pursuing to modernize and update where possible their core platforms, which are, more often than not, still running on mainframes, as to meet the expectations of customers and regulators and to add digital capabilities.
Banks are, therefore, diverting from old-school but extremely reliable mainframes to SaaS and BaaS platforms and the cloud. Cloud platforms support real-time processing and are highly cost-effective because they are offered on a pay-per-use subscription model.
Up until recently, many banks didn’t bother implementing digital technology because of a lack of time, resources, or talent to develop their own solutions.
Even today, it’s much easier and more cost-effective to enter strategic partnerships with fintech companies than to build new processes on their own from scratch.
Fintech companies offer their expertise and their advanced technology to their banking partners as a shortcut to increasing efficiency, saving time, developing or improving mobile banking apps, and delighting customers.
Of course, the other way around is also true. Fintech companies looking to enter the digital banking space are partnering with traditional banks because they already have the banking license and will do all the backend processes, such as issuing debit and credit cards and other financial products.
Traditional banks are losing millions of customers each year to challenger banks. According to research, 86% of digitally active consumers are now using fintech.
Payment services are the most popular fintech service among UK consumers, and 79% of surveyed people stated that they use fintech digital banking applications for banking and paying for goods and services.
With the rise of digital-first companies like Amazon, Netflix, and Uber, peoples’ expectations have shifted, and now they require everything to be easily and readily available through an app.
This has made bank branches mostly unneeded and unwanted by a large number of the population.
Sure, banks can cling to their brick-and-mortar establishments despite the message customers are sending.
However, this is a chance to cut costs and save serious money making more of it available to be used towards the digital technology that will help them evolve their services and offer customers what they truly want and need.
By switching to the cloud and modernizing entire systems, the money that will be saved (after the initial investment) should be one of the main reasons for modernization. Not to mention being more accessible for customers with a frictionless experience.
5. Modernizing Branches
On the other hand, some high street banks are testing innovative ways of using their branches to strike a balance between safeguarding their conventional services for those patrons who need them and welcoming the potential of new technology.
One of the more peculiar branches is that of Halifax, opened in 2018 on New Oxford Street, central London.
It’s basically 13,500 square feet spread over three floors full of colorful walls, imagery, and, of course, a coffee shop. There’s also the Halifax Home Hub that helps clients with all aspects of home buying and even with the moving process.
The travel zone is where customers can order or exchange 50+ currencies and get advice on how to save for their next trip. And other, more or less, travel-related information.
Next, there’s the kids’ savings zone, where youngsters can learn how to save money or use the coin counting machine to see how much money they have already saved up and even make a deposit.
There are also regular events happening as well in partnerships with other companies but also those presented by enthusiastic staff members.
Of course, these are only flagship branches that follow this model. Don’t expect regular branches in small towns to get similar treatment. On the contrary, they are probably getting scrapped.
6 Benefits of Digital Transformation for Banks
There’s no denying that there are many benefits for classic banks when they go through a digital transformation.
1. Enhanced efficiency and productivity
Modern technology can do wonders for legacy systems that most high street banks are/were running. By abandoning these legacy systems and out-of-date software architectures, banks are finally out of the clutches of slow processes in the backhand but also in customer-facing applications.
READ ALSO: 11 Best Fintech Marketing Agencies
2. Improved customer experience
The pandemic accelerated many digitalization processes, including the ones by high street banks. People quickly learned and got used to utilizing mobile banking apps.
This proved to be the nail in the coffin for many physical locations where the clients never returned, even after the pandemic.
And why would they when you can fulfill almost all your banking needs from the comfort and the security of your own couch? Suddenly, customers got to see the frictionless mobile apps as a much more improved customer experience for paying bills, taking out loans, sending money internationally, and even applying for mortgages.
All of this, and more, with only the minimum paperwork required by the banks due to a lower level of bureaucracy and simplified documentation.
3. New funding sources
High street and other retail banks get to tap new markets, engage a new set of customers, and even recognize new commercial and investment opportunities despite closing branches.
Digitalization signifies that they aren’t constrained by the number of physical locations anymore, and future growth is now limitless even though they’re cutting costs and personnel.
It’s an exciting prospect for any business, let alone decades or centuries-old banks.
4. Reduced operating costs
As mentioned many times before, digitalization transfers most banking services online, thus making many physical branches redundant. Banks can save money on maintenance and invest the funds into further digitalization of their business assets.
5. Data protection
People will go to a bank that is perceived as the most reliable. That’s why many fintech digital banks struggle to get older, wealthier customers to use their accounts.
High street banks can position themselves as the proven choice and attract, but more importantly, keep their wealthier clientele even after they have modernized their systems and started offering a more fintech-like experience.
New technology is also often more reliable and secure, keeping customers’ data safe. However, updating the tech stack and continued investing in cybersecurity is paramount.
Although, at the moment, fintech startups are snatching up millions of customers from high street banks, the incumbents have more financial trust in the eyes of consumers, and as they continue modernizing, the needle can easily sway back.
Not only that, but with higher customer satisfaction levels, high street banks could start attracting the younger generations as well as they start entering the workforce.
High street banks in the UK but also worldwide are scrambling to modernize their services and offer their existing and potential clients new ways of banking that were launched by fintech companies such as Revolut, Monzo, and Starling.
There are many reasons why high street banks need to have a coherent and quickly implemented strategy for digital banking.
However, once the modernization and digitization process is completed, there’s no time to rest because fintech companies are always looking for more ways of disrupting traditional banking.
Unless traditional banks start thinking like startup companies, they will always be at risk of losing customers, young and old, to new players on the market that are offering new or improved financial products.
The first step to retaining and getting new business is to offer a frictionless app with almost no paperwork that appeals to most demographics.