The Dual Imperative in Banking: A Balancing Act Between Operational Efficiency and Innovation

Over the years, two imperatives have emerged in the banking sector as it faces the impact of market shifts challenging traditional business models. There is the imperative to run the bank (RTB) — that is, manage the bank’s operations — and change the bank (CTB), or prioritize innovation across the bank’s landscape. Investors and other stakeholders are urging financial institutions to choose between maintaining business-as-usual operations and driving transformative changes through digital-first infrastructures.

Let’s delve into the nuances of RTB and CTB and explore their symbiotic relationship within the evolving banking ecosystem.

Running the Bank: The Pillar of Stability

RTB refers to the core operational processes that ensure the smooth functioning of financial institutions. It encompasses day-to-day activities that underpin customer transactions, risk management, compliance and regulatory adherence. In essence, it means ensuring uninterrupted operations, minimizing downtime and maintaining active system functionalities and legacy infrastructure.

For many banks, RTB is a strategic choice that elevates priorities like

• Risk Mitigation

• Regulatory Compliance

• Operational Efficiency

• Financial Stability

But with innovative technologies, fintech disruption, cloud-based operations and evolving customer demands transforming the sector, traditional banks are re-evaluating strategies to stay relevant and achieve more than just the RTB goals.

This is where the concept of “change the bank” comes into play — altering the traditional banking paradigm by embracing tech modernization to ensure a future-ready banking experience.

What Is Changing the Bank?

CTB is the transformational step that aims to make significant changes to a bank’s operations, processes and systems. While in the past the financial services sector relied heavily on physical assets, CTB propagates virtual operations via tech platforms. For example, neobanks like UK-based Revolut are revolutionizing the banking landscape without maintaining any form of in-person customer interface. Revolut alone has amassed over 45 million retail customers.

By leveraging AI, the cloud and analytics, neobanks and challenger banks are enjoying significant advantages of reduced-cost frameworks and modern IT architectures, including

• Fast data access which translates to enhanced digital/online services

• Expedited product launch and pricing flexibility

• Cost-effective scalability and core system operation

• Agile operational approach which makes it easier to adapt quickly to market changes

• Real-time payment capabilities

• Connections with third-party services via open banking which help simplify customer onboarding processes

Changing the bank is not just about staying current. It is a strategic move to enhance efficiency, elevate customer experiences and create additional revenue streams by harnessing the power of technology. That said, some institutions might not want to immediately adopt a CTB strategy but instead think of CTB as a mindset that defines the way it deploys processes.

8 Approaches That Bring Clarity to Help Banks Adapt

Adapting within the banking sector is a perpetual challenge, particularly when navigating through external factors like regulations, interest rates and economic volatility. This calls for a delicate balance between efficient day-to-day operations while establishing a roadmap of sustainable change. Here are eight strategic considerations that can help banking leaders identify gaps in their transformation agendas and cultivate a capacity for success:

1. Keep an eye on the market
   Always check how your plans fit with current market trends and risks. 

2. Budget wisely
   Plan your budget with both daily operations and big changes in mind. 

3. Build data and analytics capabilities
   Adopt a multidisciplinary approach that addresses front-office needs and risk management. 

4. Empower leaders to navigate change
   Develop a management perspective that aligns RTB and CTB initiatives. 

5. Continuously enhance teams’ skill sets
   Bear in mind how trends and transformations will affect employees’ roles and responsibilities, and act accordingly. 

6. Strategically position your institution
   Assess operational capabilities in the evolving market. 

7. Carry out cross-organizational communication
   Aim to involve stakeholders at interdivisional and enterprise levels. 

8. Develop decision-making agility
   Place leaders in influential roles to grow amid technological, competitive and geopolitical disruption.

In an ever-changing environment, leadership teams must stay focused through the uncertainty, grasp the extent of ongoing evolution and make bold choices to win in the long run.

Pathways to Banking Modernization

Running the bank and changing the bank are not mutually exclusive strategies. Instead, ideally, they inform and reinforce one another. Here are four paths banks can choose to modernize their legacy core banking systems.

• Wrap the core
  Revamp user interfaces without altering the back-end by wrapping the legacy core with service and innovation layers. Use cloud-native structures and advanced web tech for new UI, optimize batch workloads and integrate APIs for seamless compatibility. 

• Complete overhaul
  If you’re aiming for a full transformation, articulate interim deliverables through proof-of-concept to ensure a smooth user acceptance testing (UAT) stage. 

• Progressive modernization
  For larger banks with intricate legacy systems, a strong option is to selectively modernize modules over time, based on business and IT needs. This enables more efficient resource allocation while maintaining safety during the transformation. 

• Greenfield approach
  Establish a parallel Greenfield digital bank alongside the legacy stack, combining traditional bank advantages with challenger bank agility. This option allows a bank to cost-effectively scale, deliver digital experiences and foster innovation.

As experts within the banking ecosystem, we at Material understand that embracing this duality is the key to not only surviving but thriving in the intricate landscape of modern banking. With our expertise and intelligent digital technologies, we empower businesses to innovate from a customer, community and industry perspective.

With the power of the cloud, you’ll benefit from democratized technology, increased speed-to-market and new opportunities via the cloud API ecosystem – allowing entry into new markets in an efficient, agile and cost-effective manner.