Editor’s Note: Financial institutions must modernize to meet customer demands, but it’s also critical to reduce risk as you implement your digital strategy. The future of finance can be found in cloud-native software, which will allow banks and credit unions to transcend geographic limitations, offer more services with fewer physical locations and provide truly custom services that can stand out from what the competition has to offer. In order to break away from what has been done before, you need an underlying network that will support your ambitions.
As a former real estate developer and home builder, I’ve had the opportunity to build a variety of homes to accommodate different needs. Generally, home builds can be broken into one of two categoriesa cookie-cutter track house or a uniquely designed custom build. A track house is a standardized blueprint. Slight adjustments could be made, but ultimately, most track houses have similar layouts and designs, with small customizations that the homeowner could make like colors and finishes.
A custom build on the other hand, allows a home builder to design to the needs of their specific lifestyle. A large family can design a home that fit the needs of each family member, a car enthusiast can build a larger garage, and a chef can build a kitchen built to their needs. While a custom build can be more costly and require a much longer timeline, the homeowner can get a home that perfectly accommodates their living needs.
Today, as I look at the banking industry and the way business models are shifting, I see that our blueprint and infrastructure has to evolve with it.
Five years ago, if you had looked under the hood of every bank in America, we’d see the banking version of a track housesame type of systems, same type of capabilities, with the same type of people working in them. This was particularly the case with community and regional banksmany have been reliant on technology providers who standardized products and services in order to provide thousands of smaller banks access to competitive technology. Fast forward to today, two years after a global pandemic that catapulted us into a digitized future, it’s fair to say standardization in banking no longer exists.
A survey by McKinsey & Co. highlighted that the COVID-19 pandemic sped up the adoption of new technologies by several yearsand changed business forever. Like many sectors, banks and financial institutions had to adapt and accelerate their digital transformation strategy amid pandemic-driven disruption.
Take geographical footprints for examplewhile banks used to be limited to their specific area or region, digital capabilities have eliminated that limit. Banks can now tap into wider markets and offer services at a digital capacity. And while there will always be a place for in-person financial services technologies are making client experiences even better in some cases.
Additionally, with the implementation of digitized systems and processes, banking is becoming a very niche play, and a specialized business model is becoming more apparent across the sector. We’re shifting to custom builds. The fact is, by specializing, it allows banks to have fewer competitors and create additional revenues of income.
Whether a bank is hyperlocal, specifically for fintech or small-business-focused, the idea that you can now pick and choose your financial institution (FI) based on your needs, interests and lifestyle is far more appealing to the customer and can help banks at the same time focus on profitability within their specialty.
The world of technology in banking has also seen a dramatic change over the years. While there used to be threefive major technology providers that offered products to banks of all sizesthat’s no longer the case. There are now hundreds of technology providers that banks can choose from, all of which offer banks the ability to build solutions for their unique audiences. From end-to-end solutions and core technologies to tech that handles mobile app development and various types of wires and loan servicesthe possibilities are endless.
The capability of choosing who your partners are gives institutions the ability to create a niche type of financial organization. Take BoeFly for instance, they work with our bank and target a very focused segment of the marketplaceaccelerating growth for franchisors and franchisees. Similar to this, Built is a fintech company and leader in construction finance software that works with banks that have a large construction portfolio of clients. They created a technology that simplifies the lending and spending process for the entirety of the construction finance ecosystem. Both of which allow institutions to partner and offer specialized services to niche audiences.
Another example, larger cloud-based technology platforms like nCino provides an end-to-end solution by integrating with the bank’s core, allowing banks to build workflows and approval processes, replacing manual-based processes. Ultimately, enabling banks and FIs to better serve their clients.
With innovation comes new unexplored territoryso while risk mitigation in banking isn’t new, there are different types of risks that banking institutions now face. Utilizing different types of technologies creates risk. Whether that be, opening platforms with various application programming interfaces (APIs), adopting blockchain, investing in crypto, or otherwise integrating with other financial companies to provide informationtheir affiliated risks continue to grow in tandem with the capabilities that banks can bring on.
As the world of technology keeps building out new products and services, it’s important for financial institutions to understand their own level of risk associated and be able to monitor it. Knowing when to tap into a fintech partner that can help banks mitigate the threat that goes along with it is crucial. It is also key to understand that a human reviewing an AI process to look for potential risks will never be parallel to a risk mitigation technology that matches the same level of intelligence and pace.
The world is changing at a much faster pace than ever before, and according to a report by Forrestertechnology is predicted to grow 6.7% in 2022. It’s clear that banks are competing in a different way and will continue to build unique business models as their competitive advantage. From risk to technological infrastructure and org charts, the banking industry’s wave of innovation will make for a new kind of custom builds.
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