Smart(er) Banking Requires More Than Just Tech

In recent years, the term "smart banking" has become a catchphrase, but what does it really entail? For many, the answer is clear: technology. This is largely accurate, as technological advancements have revolutionised every sector of the economy, and finance is no exception.

Historically, banking involved scheduling appointments and visiting physical branches to discuss financial needs. Today, mobile interfaces allow customers to browse and apply for products anytime, anywhere, with just a click. Artificial intelligence (AI) bots now swiftly direct customer inquiries to the correct departments, and machine learning tracks spending habits to offer tailored recommendations. With rapid advancements in technology, exemplified by the evolution of AI models like ChatGPT, the services financial institutions can provide continue to improve significantly.

These technological innovations have given rise to the fintech sector, which has become a formidable competitor to traditional banks. The financial technology industry has seen massive investment, growing from $61.1 billion in 2015 to $238.9 billion in 2021. This has sparked a digital arms race not only among fintech firms seeking the next big breakthrough but also between traditional banks and big tech companies. The future of financial services will be increasingly defined by sophisticated technology, and with substantial financial stakes involved, it's imperative for banks to get it right. This is where smart banking needs to evolve into smarter banking, leveraging more than just technology.

Beyond Technology For financial institutions, it’s crucial to build the right tech infrastructure and adopt a strategic approach to competing digitally, alongside offering the best technological solutions to customers. When contending with digital-first fintechs, banks can either develop technology in-house or onboard it from specialised suppliers. Making the right choice here is essential and will shape the future of financial services, particularly as consumers become more mobile and accustomed to seamless digital experiences provided by tech companies.

Developing technology in-house is costly and time-consuming. Moreover, the traditional banking culture is not always suited to the agile development processes that tech requires. Beyond AI, smart banking demands a comprehensive toolkit of solutions and processes, coupled with the ability to adapt quickly. Traditional banks face challenges in this regard due to inherent resistance to change and reliance on outdated systems. While fintech companies typically use agile frameworks and quick development cycles, banks must recognise this reality and act accordingly.

This challenge, however, also presents an opportunity. The traits that make it difficult for banks to mimic tech companies—reliability, stability, and robust business practices—are also their strengths. Fintech business lending grew from $121 million to $2 billion between 2013 and 2018, but customer satisfaction with digital-first lenders still lags behind traditional banks. This presents an opportunity for traditional banks to reclaim their position.

Often, the best solution for banks is to partner with fintech companies that can provide the necessary tools for rapid innovation and effective data utilisation. Such partnerships allow banks to integrate technology swiftly, while focusing on their strengths: brand recognition, security, stability, and trust.

Established banks must go beyond basic services and embrace customer payment capabilities. By facilitating small business payments with user-friendly terminals and e-commerce tools, banks can offer excellent customer experiences to SME clients. For banks, integrating payment technology allows them to capture valuable data on the lifecycle of SME customers, their challenges, and their needs. Banks possess enormous volumes of rich customer data, and applying machine learning to this data can transform their relationships with SME clients.

Key Takeaways Smart banking is often narrowly defined as synonymous with technology. While tech plays a significant role in smart banking, providing personalised services and excellent user experiences, true smart banking encompasses much more. It requires expertise, stability, and a brand that instils confidence in customers.

Traditional banks have a unique opportunity to capitalise on their inherent advantages while partnering with tech firms that can deliver rapid innovation, meeting robust security, risk, and compliance needs. For customers, this means accessing cutting-edge technology and user experiences, coupled with the trust and security of well-established banks.
This comprehensive approach represents smart banking in its fullest sense and is a strategic move for traditional banks.