Traditional Institutions in the Banking War: What Are the Chances to Win (Sergei Artimenia)

The massive changes that take place in the banking sector are often portrayed as the intense competition within the industry, namely between progressive institutions and those considered traditional ones.

Instinctively, being a “progressive” bank looks more appealing than being called a “traditional” bank. That is why it would look like more traditional financial institutions want to change themselves into progressive ones. But labels matter much less than actions do.

Read my article about the Evolution of banking in post pandemic time.

A winning approach is not fitting into a particular financial institution category. It is more about serving customers in the best possible way. Some financial institutions take it as staying at the forefront while others choose wait-and-see tactics. It is one thing to lag behind because of budget or even security concerns. But it is completely another to simply not be focused on the right areas.

If your financial institution is still spending time trying to adapt to online banking while competitors are already implementing advanced mobile banking tools, you have a problem. Now, financial institutions should understand the obvious trends for concentrating on delivering seamless experiences to customers who are device agnostic.

Progressive and traditional banks: key differences

There are the following criteria that differentiate traditional banks from forward-thinking ones:

  • Progressive bank customers are more likely to interact with the bank via mobile.
  • Traditional bank customers prefer to interact with the bank through a desktop.
  • Customers of progressive banks are more likely offered with spend analytics.
  • Progressive banks are more likely to offer account aggregation services to customers.
  • Traditional banks often only cite improving the customer journey as a higher priority than progressive banks.

Taking into consideration specific retail products and accompanying features, including budgeting tools, bill pay, chatbot support, and P2P payments, are often offered both by progressive and traditional banks. But in other areas, progressive banks are leading the pack in spend analytics, account aggregation, free credit reporting, and mobile check deposit.

Customer targeting: who hits the bull’s eye

Progressive banks are far ahead in being more focused on targeting the right customer in the right way than their traditional opponents. Due to the elimination of geographic boundaries provided by digital banking, financial institutions can portray their customer base according to segmentation criteria other than physical proximity, such as ethnicity, occupation, or home ownership.

But there is something in common about traditional and progressive institutions. They both have been slow to adopt the agile product development methodology common at FinTechs. And despite doing a good job at customer segmentation, progressive banks have much work to do to launch products fast.

The common scourge: overconfidence

Very few banks both progressive and traditional think they are lagging behind in technology and innovation adoption. But in reality, they are likely further behind than they realize.

Let’s take application programming interfaces readiness, for instance. Traditional banks declare they are more prepared to use APIs. But that happens because they define readiness of API differently than progressive banks do. Or they simply don’t think it’s worth paying attention. 

A lot of banks have been using APIs internally for years. But the ability to leverage APIs in cooperation with third parties to deliver the best services for customers is a different thing that requires a more flexible technology infrastructure onboard.

Though progressive banks are coming to API with a stronger foundation than traditional banks, not all of them can admit that they have full access and control over data inside their organizations in comparison with half of their traditional opponents.

Progressive and traditional banks: the hunter and the prey?

Do progressive banks think of traditional banks as prey? To some extent, yes. In the future progressives slowly but surely will acquire more traditional institutions. As the number of progressive institutions grows, the industry will march forward in the way the progressive banks define it. But the transformation to a largely progressive financial services industry won’t happen that quickly. While banking is transforming, the nonbank competition will only become more widespread.