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Capgemini World Retail Banking Report Review

Banks are facing extreme pressure to improve their customer experience offerings or risk falling behind digitally-savvy and high-tech FS players, according to the World Retail Banking report by Capgemini. To compete, traditional banks must focus on offering hyper-personalised and engaging customer journeys powered by meaningful consumer data. Central to achieving this will be an overhaul of outdated and inefficient legacy systems and the implementation of a modern core.

The challenges of traditional core banking

Covid-19 has hit the banking industry hard. While improving traditional banks’ platforms requires transformation of the bank’s core, this is challenging in the current climate. However, the pandemic and its ensuing operational challenges has also highlighted the urgency for this digital transformation. Capgemini recommends:

  • A phased approach which can help banks to achieve time sensitive goals with minimal risk. This will facilitate gradual transformation of the core system
  • The eventual move to an open platform powered by a high performing core. This will allow a customer-centric ecosystem of relevant financial and non-financial services

By modernising the core system and moving to an open platform, even if the process is gradual, banks will be in a far better position to undertake the necessary digital evolution to compete with emerging fintechs and challenger banks.

How can banks meet these challenges?

The Capgemini report focuses on the key areas banks should target:

  • Adopt the Open X approach to doing business – this will allow incumbents to reduce their operational costs and collaborate with ecosystem partners to create a hyper-personalised service, improve their product portfolios and boost their revenue.
  • Capitalise on data rich advantages – the pandemic has highlighted the importance of being able to offer customers efficient and timely support. Legacy systems are a burden for effective data management.  A modern core is essential to allow banks to utilise customer data effectively for this hyper-personalised approach.
  • Innovate to move digitally forward – a risk averse mind-set can generally undermine innovation and impede future growth. Consumers increasingly seek products that fit in with their tech-focused lifestyles, such as experiences powered by AI, and banks that cannot meet these demands will fall behind.

Capgemini’s statistics further emphasise how platform-based banking can meet these target areas. When assessing the ease of banks to achieve business priorities, both in their current state and as a platform based bank, the latter was found to be more efficient in every category. For example, compared to banks as they are now, a platform based bank would find it:

  • 1.4 x easier to upgrade the customer journey
  • 1.8 x easier to improve operational efficiencies
  • 2.1 x easier to maintain and increase business profitability

Adopting the platform model

The adoption of the platform model is individual to each specific bank.  The goal should be a hybrid platform that enhances both innovation and transactions in a way that meets the business objectives and long term requirements of each unique bank. Banks can build, buy or share platform capabilities:

  • Build: this route can involve two different journeys. The Greenfield approach, involves making the platform from scratch and often tailoring it to the traditional model. The Brownfield approach involves a bank transforming its current pipeline model through legacy infrastructure enhancements and upgrades to IT.
  • Buy: banks who want to accelerate the pace of change may strategically use acquisition so that the bought company becomes the platform.
  • Share: banks who want to avoid building their own platform can utilise ready-made platforms significantly reducing cost and implementation time.

Whichever route is chosen, the fact remains that core banking transformation is a long journey. Banks tend to prioritise short-term wins over long term growth, however the rate of digital adoption makes this approach rapidly unsustainable. Banks must act now or risk becoming rapidly outdated with no time to catch up.

To read more on the modernisation challenges facing traditional banks, please download the Capgemini World Retail Banking report here.

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