# Waking the sleeping giant: challenging banking
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2017-10-31
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: Digital Disruption: The Threat to Traditional Banks in UK
Meta Description: Discover how digital banks and fintech firms are reshaping the consumer banking sector through innovative technologies and personalised customer experiences.
URL: https://financedigest.com/waking-the-sleeping-giant-challenging-bankinghtml

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_**Lee Thorpe**, Head of Risk Business Solutions, SAS UK & Ireland_

The current banking landscape is still dominated by traditional players. However, a new wave of digital banks is steadily disrupting these old high-street staples by offering a differentiated customer experience and an alternative value proposition for consumers. With new channels and opportunities comes change, but the real threat to traditional [banking lies in losing the customer](https://www.financedigest.com/how-close-can-banks-get-to-their-customers.html "How close can banks get to their customers?") relationship to new high-tech players.

**Old vs. new**

Though high-street banks retain a dominant position within the consumer banking landscape, the combination of a low interest rate environment resulting in lower margins and the recent innovations of [digital banks](https://www.financedigest.com/being-the-best-digital-bank-is-not-enough.html "Being the Best Digital Bank is Not Enough") are chipping away at once reliable revenue sources. Consumer confidence in financial services has remained low since the [banking crisis](https://www.financedigest.com/swiss-national-bank-raises-rates-says-bank-crisis-stopped.html "Swiss National Bank raises rates, says bank crisis stopped"), leaving a yawning gap ready for an army of new entrants to fill.

Additionally, in anticipation of increased competition from these challengers, traditional banks are focused on [cutting costs](https://www.financedigest.com/hm-to-cut-costs-as-profits-hit-by-inflation-cautious-shoppers.html "H&M to cut costs as profits hit by inflation, cautious shoppers") by driving more consumers to digital channels through minimising brick and mortar branches. Yet, this strategy has only worked to encourage the more agile digital banks, unburdened by deep-rooted legacy systems, to [innovate and define a new customer](https://www.financedigest.com/customized-innovation-to-drive-the-human-microbiome-market.html "Customized innovation to drive the Human Microbiome Market") relationship in a bid to develop a differentiated business model.

The threat to familiar institutions doesn’t come solely from digital banks. The payments industry has been completely [transformed](https://www.financedigest.com/three-ways-blockchain-is-transforming-payments.html "Three ways blockchain is transforming payments") in recent years by tech firms that are pioneering the offer of mobile wallets and integrated payment services, cutting banks off from a potential source of additional revenue.

**Customised customer service**

Through blockchain, distributed ledger and AI technologies, [fintech companies](https://www.financedigest.com/7-cyber-threats-fintech-companies-should-watch-out-for.html "7 Cyber Threats FinTech Companies Should Watch Out For") have seriously disrupted the status quo in banking. They have also proven particularly [innovative in their use of customer data](https://www.financedigest.com/accelerating-financial-services-innovation-with-the-promise-of-data-mesh.html "Accelerating financial services innovation with the promise of data mesh ").

Data collection on a massive scale has [become a crucial way for banks to provide new value for their customers through personalised products and services](https://www.financedigest.com/becoming-more-than-a-bank-adding-value-through-financial-solutions-as-a-service.html "Becoming more than a bank: adding value through financial solutions as-a-service"). The more data a customer grants banks access to, the better they know them and the better they understand their needs and wants. Using this insight, [banks can then offer the most relevant products and services](https://www.financedigest.com/the-future-of-financial-services-how-apis-are-fuelling-the-rapid-rise-of-open-banking.html "The future of financial services – how APIs are fuelling the rapid rise of Open Banking") to these customers, resulting in a more satisfying, personalised customer experience.

The strategic mining of [big data can also help banks](https://www.financedigest.com/banks-struggle-to-harness-big-data.html "BANKS STRUGGLE TO HARNESS BIG DATA") make better business decisions. For example, if a bank is collecting data on how many customers are viewing a certain product, and can actively notice an uptick in the number of people viewing that product, it can respond immediately with more options in this area, at once providing more customer choice and responding cleverly to [market demand](https://www.financedigest.com/all-terrain-vehicle-market-demand-supply-growth-factors-latest-rising-trend-and-forecast-to-2027.html "All-Terrain Vehicle Market Demand, Supply, Growth Factors, Latest Rising Trend and Forecast to 2027").

Traditional [banks of course have an immense amount of customer](https://www.financedigest.com/canadian-banks-fighting-brokers-back-for-customers.html "Canadian Banks Fighting Brokers Back For Customers") data at their fingertips. However, legacy IT and data infrastructures often prevent them from utilising it effectively. By contrast, [challenger banks](https://www.financedigest.com/the-rise-of-challenger-banks.html "challenger banks") have generally benefitted from modern, centralised systems where data is central to the decision-making process. This has enabled them to develop a new model of engagement – a customer-centric approach to capitalise on the perceived inflexibility and lack of care and attention that the [finance sector](https://www.financedigest.com/time-to-act-as-cybercriminals-hot-on-the-heels-of-finance-sector.html "Time to act as cybercriminals hot on the heels of finance sector") has been accused of.

**Automation – unknown unknowns**

In the era of the always-connected customer, challengers have benefitted greatly from the ability to [automate key processes](https://www.financedigest.com/the-aquaculture-feed-and-pharmaceutical-market-to-move-ahead-on-rpa-robotic-process-automation.html "The Aquaculture Feed And Pharmaceutical Market to move ahead on RPA (Robotic Process Automation)") and provide instantaneous customer services that are far more convenient than the interpersonal services offered by established high-street competitors.

Yet automation has its dangers. In an [automated system](https://www.financedigest.com/test-automation-systems-for-powertrain-dynamometer-market-to-reach-worth-of-us-1-20-bn-by-2031-tmr-insights.html "Test Automation Systems for Powertrain Dynamometer Market to reach worth of US$ 1.20 Bn by 2031, TMR Insights"), it is impossible for a bank’s human employees to have visibility over all services at all times. While we have not yet encountered a significant failure of automation that has severely [impacted the profitability or reputation of a bank](https://www.financedigest.com/the-latest-trends-in-instant-payments-and-how-they-impact-banks.html "The latest trends in instant payments and how they impact banks"), the more they rely on coding and software without adequate governance, the more likely that the process will suffer interference or downtime at some point during its lifecycle.

Increased [automation means that businesses](https://www.financedigest.com/the-importance-of-upskilling-to-prepare-for-business-automation.html "The importance of upskilling to prepare for business automation") are more reliant on data models and algorithms. At its core, [banking remains](https://www.financedigest.com/bank-of-england-consults-on-remaining-basel-bank-capital-rules.html "Bank of England consults on remaining Basel bank capital rules") a complex but deeply customer-focused enterprise. If something goes wrong due to a failure of automation while the customer is directly involved, it could significantly dampen the customer experience and damage their relationship with the bank.

Not only must banks seek to understand what went wrong for internal improvement, they will need to [communicate that explanation to an audience of customers](https://www.financedigest.com/a-ccm-platform-is-crucial-to-your-customer-communication-plans-heres-why.html "A CCM platform is crucial to your customer communication plans: here’s why") wondering why the system has failed them. Yet in an automated system, it will likely take the [bank a great deal of time](https://www.financedigest.com/now-is-the-time-for-banks-to-introduce-intelligent-account-analysis.html "Now Is the Time for Banks to Introduce Intelligent Account Analysis") and effort to answer this question, all while its reputation suffers.

**A tale of two systems**

The technology that [gives challengers](https://www.financedigest.com/youtube-in-challenge-to-tiktok-to-give-shorts-creators-45-of-ad-sales.html "YouTube in challenge to TikTok to give Shorts creators 45% of ad sales") their edge, also poses a significant risk. The titans of retail banking have maintained their dominance so long for good reason. If disruptors wish to enjoy the same longevity in the future, their [technology will need to be water-tight and configured to provide the best possible customer service](https://www.financedigest.com/talent-acquisition-staffing-technology-and-services-market-to-reach-usd-196-1-bn-by-2028-comprehensive-research-report-by-fmi.html "Talent Acquisition & Staffing Technology and Services Market to reach USD 196.1 Bn by 2028 – Comprehensive Research Report by FMI"). Speed of service is one thing but, when it comes to a [customer’s personal](https://www.financedigest.com/meeting-customers-where-they-are-through-financial-inclusion-and-hyper-personalization.html "Meeting Customers “Where They Are” Through Financial Inclusion and Hyper-Personalization") wealth, reliability is all-important.

This, however, does not change the fact that disruptors are speaking to the [needs of today’s](https://www.financedigest.com/cfos-need-to-embrace-todays-technology-for-tomorrows-success.html "CFOs need to embrace today’s technology for tomorrow’s success ") always-on customers. Unless they learn the lessons of the new entrants and can provide comparable convenient and personalised services, traditional retail banks are at risk of losing valuable [market share](https://www.financedigest.com/countertop-spray-market-share-by-2028-upcoming-trends-and-analysis.html "Countertop Spray Market Share by 2028: Upcoming Trends and Analysis") to their agile challengers.

Perched atop a deep reservoir of customer data, traditional [banks are well-placed to re-evaluate their digital](https://www.financedigest.com/digitisation-of-banking-the-impact-of-digital-money.html "Digitisation of Banking: the impact of digital money") strategies. This [means automating customer-facing services](https://www.financedigest.com/what-does-software-as-a-service-mean-for-healthcare.html "What Does Software As A Service Mean For Healthcare?"), as well as digitising and expanding their omnichannel approach. Digitisation [holds many benefits for retail banking](https://www.financedigest.com/polish-central-bank-holds-rates-points-to-slowdown-ahead.html "Polish central bank holds rates, points to slowdown ahead"), but only if it is grabbed by the horns.


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