the lights on’. Most banks are struggling simply to keep up with their regulatory, shareholder and current customer demands; few have the time, resources or budget to take on a new – and highly disruptive – transformation agenda.
However, what has become abundantly clear over the past few years is that these barriers must be overcome for growth to take hold. And there is no time to waste. It’ s not just FinTechs that are disrupting the market. So, too, are some of the nimbler traditional competitors.
The Allure of Starting Fresh: Traditional banks in the Caribbean region have only two real options to consider. They can either try to reinvent their existing operations or they can try to start anew with a brand new customer proposition.
There is a strong pull to starting anew. Indeed, the FinTechs have proven that new and profitable customer propositions can be created at very low cost when freed from legacy infrastructure and traditional ways of thinking. Cloud computing, scalable technology and sophisticated D & A can all be harnessed to‘ stand up’ a new bank fairly quickly and start building tailored customer propositions and experiences.
“ FinTechs have proven that new and
profitable customer propositions can be created at very low cost when freed from legacy infrastructure and traditional ways of thinking.
”
Recognising the benefits that a‘ greenfield’ type of approach can offer, a number of banks around the world have started to create their own stand-alone‘ challenger’ banks and operations. Some have started with a blank sheet, rethinking the very core of the banking proposition. Others have taken the more cost effective( yet less competitive) approach of white labelling a FinTech solution as a new banner under their Group operations.
Building on a Strong Foundation: While starting anew may be alluring, there are certain drawbacks. For one, few( if any) greenfield banks have yet to achieve sufficient scale to create a viable business. Some have been rather successful attracting certain market segments( particularly the Millennials and the preceding generation) but none have yet to parlay their advantages into the wider banking market.
Starting anew also means losing all of the major advantages that traditional banks have built up over the past century or more. Massive value still remains in the relationships banks have created with their customers and the infrastructure they have developed to serve them. And nobody understands financial regulation and compliance requirements quite like traditional banks. Not surprisingly, nobody wants to throw the proverbial baby out with the bathwater.
“ Banks will ultimately leverage
their unique relationships with consumers, acute regulatory acumen and experience in the markets to develop a wining proposition.
”
The challenge here, however, comes down to what can be called the‘ two speed dilemma’: encouraging disruptive, real-time, always-on technologies at the front end, while simultaneously renovating the slower-moving legacy, batch processing and( often bespoke) product processing systems at the back end.
Rather than spending significant sums on innovation within the channels, most traditional banks will likely form partnerships and alliances with FinTechs and others who better understand technology and customer analytics. The big problem is going to be at the back end, where banks will eventually need to renovate their entire IT estate in order to properly integrate their new customer propositions and respond to new demands from the business. No doubt about it: this will be a disruptive and complex proposition.
Time for Action: The next few years could be fraught with danger and challenges for traditional banks. In fact, KPMG’ s view of the global markets suggests that FinTech startups and‘ greenfield’ brands may well gain the upper hand over the next few years, particularly as banks struggle to understand their customers, transform their IT estates and reinvent their role in the value chain.
However, it is likely – in the long run – that traditional banks will retain their dominant position in the region. It will take time, tenacity and smart strategies. And in some cases, traditional banks may well acquire their‘ challenger’ competitors in order to quickly capture new capabilities. But undoubtedly banks will ultimately leverage their unique relationships with consumers, acute regulatory acumen and experience in the markets to develop a wining proposition.
But be warned: not all traditional banks will fare as well in this drive towards customer centricity. Those that move quickly to secure a competitive advantage and build capabilities will likely thrive in the new environment. Those that wait until the pressure to change is unbearable may well be too late.
Brenda Pope is Head of Management Consulting, KPMG Islands Group Advisory and Management Consulting Partner, KPMG Barbados bpope @ kpmg. bb.
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