Essentials for the post-pandemic bank: What banks will need to do

Financial services companies are looking to leverage the platform and network economy to cater to their customers in new ways. Image: Shutterstock

The world had to move to a digital space almost overnight. Before the Covid-19 pandemic changed the way, banks operated, Mr. Murthy, a middle-aged entrepreneur from Hyderabad, preferred to visit the local branch of a public sector bank for all banking transactions. His interaction with the bank staff at the branch was related to passbook updates, cheque deposits and withdrawal of money from his account, among several other transactions. Post the first lockdown announcement in March 2020, Mr. Murthy, with the help of his family members, had to move to the digital platform. He downloaded his bank’s mobile application and quickly learned to conduct all his transactions from his home.

This story reverberates with millions of others across the country who have, like Mr. Murthy, swiftly transitioned to their first digital banking experience. The pandemic has enhanced the need for everyone to become digital natives—technology-savvy individuals who seek a seamless Uber-like experience. In addition, banks have enhanced their traditional banking services by providing value-added services including special offers on the purchase of groceries, air tickets and utility payments by partnering with relevant service providers as social distancing with convenience takes centre stage. Over the last few years, rapid digital innovation and the macro-economic environment has led to innovation-driven banks. Financial services companies are looking to leverage the platform and network economy to cater to their customers in new ways.

Avenues for banks in the post-pandemic world
The banking sector has an advantage over other industries – in a recent global survey by the IBM Institute for Business Value (IBV), 68 percent of participating customers revealed they were willing to share their personal data with banks. Furthermore, about 91 percent of the respondents who shared their personal data with banks, said they trusted them to protect their personal information to a moderate extent. As trusted partners, banks are uniquely positioned to respond to their customers beyond core banking services by becoming a conduit for a range of services, experiences and products. For instance, a bank can help a farmer decide the ideal crop mix across seasons by partnering with pertinent Artificial Intelligence (AI) platform companies. In addition, it can connect customers to markets, insurance providers and even logistics partners as part of a package.

Banks can now build many business platforms within and across ecosystems that are not necessarily mutually exclusive. For example, they can form a technology platform that could provide resilient infrastructure in an "as-a-service" model for other banks and financial services companies. They can also morph into business process platforms to support intelligent processes that can resolve common issues faced by various stakeholders in an ecosystem, including other banks. Or they could become a market platform for financial and economic exchanges between various stakeholders across ecosystems on a global scale.

However, in the shift from a product-based approach to a technology-driven platform model, banks will face technology challenges related to processes, applications, data, IT infrastructure and customer experience. In addition, the banking sector faces stringent cybersecurity and compliance requirements, further increasing IT complexity. As per the Reserve Bank of India (RBI)’s Cyber Security Framework in Banks, financial institutions must have a cybersecurity policy and Cyber Crisis Management Plan in place. They need to set up a Security Operations Centre for proactive and continuous surveillance backed by tools for data analytics and real-time response mechanisms. Their IT architecture should be designed in a way that facilitates all-encompassing cybersecurity measures. Banks must make sure there is no scope for unauthorised access to their networks and databases through well-defined processes besides ensuring the protection of customer information irrespective of where the data is stored.

To meet these requirements and overcome the challenges in the shift to a platform economy, banks can adopt an open hybrid multi-cloud-based business architecture that is tuned to today’s digital reality. Moreover, an open hybrid multi-cloud will help them adopt new technologies and deploy new functionalities which traditional systems could impede due to their lack of flexibility.

Cloud can solve technology challenges in a platform model
In the era of platforms, cloud-based infrastructure provides the agility and scalability that can empower a bank to adjust and react to market changes quickly. By adopting multiple interoperable platforms, banks and financial services companies can also bolster cybersecurity challenges. Moreover, an open hybrid multi-cloud architecture provides access to AI-powered security tools specifically designed for the banking and financial services industry enabling them to embrace a platform and network economy. As one size does not fit all, banks and financial services companies need to customise their IT strategy as per their business plans while balancing security and compliance requirements.

Importantly, open hybrid multi-cloud is a foundational environment for AI-powered processes and systems, intelligent workflows, and extended ecosystem engagement that are crucial in the platform economy. An open hybrid multi-cloud architecture leads to cost reduction—so banks can scale as per their data needs in real-time, saving on expenses for unused digital capacity. In addition, banks can enhance the customer experience, which is a critical differentiator in a platform economy, by moving digital resources as per the demand. Further, as the open hybrid multi-cloud architecture brings about portability and consistency of business-critical analytics, processes and applications, banks can embark on a path of innovation by deploying new solutions as per client segments and geographical demands enabling them to compete with the fintech startups that are born in the cloud.

Today, the banking and financial services players understand the need for continual reinvention of their business models, and they have begun to move quickly in this direction. However, IT infrastructure will play a critical role in fostering the platform economy for banks and will determine their success in the post-pandemic world.

The author is a Director Server Sales at IBM India/South Asia.

The thoughts and opinions shared here are of the author.