Smart banking has become a catch-all term in recent years, but what does it really mean?  For some, the answer is obvious, it means tech. And this is, to a large extent, is true.

Technology has revolutionized every sector of the economy in recent decades—since the advent of smartphones—and finance is no exception.  Banking once required customers to make an appointment and go to a physical bank to discuss their needs, but now mobile interfaces allow customers to browse and apply for products anytime and from anywhere, all with the click of a button. Likewise, AI (artificial intelligence) bots triage customer inquiries to the correct department in minutes, and machine learning can track customer spending habits and make recommendations off the back of it. The list goes on and as technology continues to advance in leaps and bounds—see the rapid rise and iteration of ChatGPT for example—so will the service that financial institutions can offer their customers.  As a result of these technological innovations, fintech has become its own category of financial services, and a rival to traditional banks.

It has also become big business, with worldwide investment into the sector growing from $61.1 billion in 2015 to $238.9 billion in 2021.  This has led to a digital arms race not just between fintechs looking for the next breakthrough, but also between traditional banks and big tech. The future of financial services is going to be defined by ever more sophisticated technology, and with such sums of money involved, it’s crucial that banks get it right. This is where smart banking needs to become smarter banking, and leverage more than just tech.  Beyond Tech For financial institutions, building the right tech infrastructure, as well as employing the right strategy when it comes to competing digitally, is equally as important as offering customers the best technological solutions.  When it comes to competing with digital-first fintechs, banks can adopt one of two approaches: developing tech in-house or onboarding it from a dedicated supplier.

Getting this right is key and will determine the future of the financial services landscape, particularly as businesses are met with increasingly mobile customers who are used to the great digital experience provided by tech companies—and are willing to move to find it.  Building the tech in-house is expensive and time consuming. More importantly, the culture of mainstreet banking is not always adapted for the kind of fleet footed development and process iteration that tech development requires. Beyond technologies like AI, smart banking requires an entire toolkit of solutions and processes and an ability to move at pace.

Mainstreet banks here face a challenge in that resistance to change is often in the DNA of their systems.  Waterfall methodologies continue to shape their processes and developer tools are often dated. Fintechs are often the opposite, using agile frameworks in short ‘sprint’ efforts to get progress fast. It’s important that banks recognise this reality and take action.  This might, at first glance, look like a disadvantage.

But the very traits which make it difficult for banks to imitate a tech company are also the strengths they have when it comes to competing with fintechs. This is reliability, stability and robust, tried and tested business practices.  Fintech business lending grew from $121 million to $2 billion between 2013 and 2018, but with customer satisfaction with digital-first lenders still lagging behind mainstreet banks, there is an opportunity for mainstreet banks to start tipping the scales in the opposite direction.  Oftentimes the best solution for banks is to partner with the fintechs that can give them the tools they need to move at pace and truly harness their data. This partnership means the technology can be integrated quickly, giving banks the space to focus on the advantage they have over the fintechs, which is brand recognition and the sense of security, stability and trust that comes with that. Established banks must also step beyond just current accounts and lending, and onboard customer payment capabilities.

Banks which can facilitate small business payments can offer a great customer experience to SME customers, powered by user-friendly terminals and e-commerce tools. For the bank however, integrating payment technology means capturing hugely valuable data about the lifecycle of SME customers, the challenges and opportunities they face, and the products they need to help them succeed. Whether or not they’re aware of it, banks are sitting on enormous volumes of rich and highly valuable customer data.

Applying machine learning to this data can fundamentally change a bank’s relationship with its SME customers. Key Takeaways When discussing smart banking, the term smart is often applied narrowly, as a synonym for tech. Tech is a huge part of smart banking and makes customer journeys easier by harnessing data to provide a personalized service, and by offering great banking interfaces and UX. What’s clear however is that smart banking requires more than just tech, it requires expertise, stability and a brand that customers can be confident in.  Mainstreet banks then have a unique opportunity to capitalize on the natural advantages they have in these areas, while also teaming up with tech partners who can move fast while meeting the banks robust security, risk and compliance needs.

For banking customers, this means the tech and UX they need, plus the trust and security of a well-established bank.  This would be smart banking in the full sense, and a smart move for mainstreet.

By Nick White
Jun 05, 2023 00:00
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