IBS Journal March 2017
47
What can incumbents learn from challenger banks?
Eugene Danilkis, CEO, Mambu
The very fact that challenger banks and financial service providers have been able to cause so much disruption in the UK is a hard lesson for incumbents. The sheer number of institutions who have received or are applying for banking or credit licences, over 40 since 2010, shows that consumer demands are not being met. Those challengers who have opened their virtual and physical doors are breaking the stranglehold of the UK’s five biggest banks and in doing so are outperforming them on growth, cost- to-income and return on equity. So what can incumbents learn from this success?
Be lean, agile and focused: The business model of challenger banks enables them to outpace their incumbent competitors. Costs are drastically reduced across infrastructure, management and operations by harnessing cloud technology and the digitisation of nearly all processes. Resources are instead focused on utilising tech- driven solutions to redesign the customer journey, tailor products and improve customer service. However,
it is challengers’ frequent focus on niche markets that really sets them apart. This approach allows them to grow quickly and easily by providing a tailored offering aligned to specific needs.
Provide innovative and frictionless digital banking to keep pace with evolving customer behaviour. Challengers are providing their business and individual customers with
a refreshingly simple, streamlined and bespoke banking experience. Modular architecture connected by APIs means
that they can integrate and offer new products and services at a fraction of an incumbent’s time, cost and operational impact. Incumbents, of course, understand the critical importance of the digital experience but
are often unable to access the innovation offered by new technology or take it to market quickly due to the complexity of existing legacy technology, which makes the time and cost of change and innovation prohibitive and extremely risky to their existing core business. It is critical that they overcome the innovation interruption to compete with challengers in the digital space.
Incumbents face increasing competition in the banking and lending markets, with challenges from nimble banks, telcos and FinTechs. How should they respond to these lessons in an irrevocably changed banking landscape? The phrase ‘if you can’t beat them, join them’ has rarely been more relevant. The quickest
path for established banks to replicate the success of challengers is by starting their own green field initiative independent of their existing enterprise, leaving the pain and cost of transformation behind and starting with a clean slate. Alternatively, transforming the operations of specific business units to address high opportunity markets, without the burden of legacy technology and infrastructure of the rest of the bank can yield similar results but at higher cost and time.
In an age where consumers are time-poor and user experience expectations are increasingly high, incumbents need to allow their customers to bank whenever, wherever and however they choose.
www.ibsintelligence.com
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