CO M M E N T
Innovation in institutional banking
TOM COLCLOUGH Head of Customer Journeys, Institutional Banking, RBS International
What are the disruptive forces in the institutional banking sector, and how might incumbents respond?
E
ven before coronavirus, banking faced unprecedented disruption. Be it challenger banks leveraging technology to capture a new generation of retail customers, or regulators acting decisively to lower barriers to entry, the level of change in our market is exceptional. According to Accenture, the UK is the world’s most disrupted traditional banking market, with 15% of revenue going to new entrants. Most would agree that the retail sector has been the focus of most of that disruption. But new entrants such as ClearBank – the UK’s first new clearer in 250 years – show how the market is being disrupted from front office to back office. Institutional banking has resisted much of this disruption, but it is not immune to it. Technology develops, regulation evolves, and customer habits and demands change constantly.
WINDS OF CHANGE
Disruption is spreading beyond app-based ‘neobanks’, and clients’ improved experience of personal banking is reshaping expectations. Institutional banks are navigating regulatory, propositional and technological headwinds. Take payments. Since its introduction, the second Payment Services Directive (PSD2) has forced significant investment in heightened security, and customer demand for immediate payments has rocketed. At the same time, the speed and security of technologies such as blockchain have opened enormous possibilities for new financial services players looking to disintermediate traditional operators. Another neobank feature directly comparable to institutional banking are banking platforms that look beyond the host’s own services. Talk of banks becoming open platforms in the style of eBay may be premature, but the emergence of hybrids such as N26 offers insight into the future. Powered by the opportunities of
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open banking, these new entrants deliver core banking services, as well as customer services such as insurance referrals and spending insights. Institutional banks are unlikely to face a like-for-like threat – an emerging rival offering a replica of what we do. The disruptors tend to look different from the incumbents, offering myriad smaller, different solutions that make banks less central to the financial services landscape. The sector must respond correctly or risk death by a thousand disruptions.
A FRIEND TO INNOVATION
Some legacy banks have adopted a defensive position to retain existing business lines, by using their incumbency as a bulwark against change. For others, the solution has been to imitate their disruptors, be it by acquiring the intellectual property beneath the new products or by investing in in-house capabilities, neither of which come naturally or quickly. There is a third way, which we are embracing at RBS International, that recognises the opportunity of harnessing the energy, passion and ingenuity coming from the fintech sector. As each week seemingly brings a new disruptor, our teams are tasked with finding those that could be game-changing for our customers. We can continue to play to our strengths and deliver transformational proposition change to customers at pace by partnering with the right third parties. This requires a more open and collaborative approach than simply waiting for the winners to emerge and buying them up. So our watchword is collaboration, not competition. And, rather than viewing the new kids on the block as a threat, we are choosing to embrace disruption as an opportunity for us to differentiate. It may not deliver immediate benefits to our bottom line, but in the long term it’s a sustainable and customer-centric way of being. Transforming RBS International into a financial services supermarket offering all things via own-branded products isn’t sustainable or in the interests of our customers. Our institutional banking expertise is focused, precise and has deep roots; our understanding of this complex sector positions us well to understand the new fintech landscape and help our customers navigate it. But there’s something in it for us, too – our customer proposition can be strengthened by working with new entrants to our sector, helping us retain and win business. Recognising that these new technologies are here to stay is the first step towards ensuring that RBS International remains a progressive player in the new landscape. Innovation and disruption are a fact of life and those who aim to hold back the tide will be swept away. n
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