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Digital Disruption in the UK Banking Industry

Digital transformation is changing the way customers bank and the way banks interact with them.

Overview


Digital disruption is impacting all industries and the UK banking sector should treat this as business as usual. There are many challenges and opportunities for digitization in banking—and this report outlines recommendations for the industry.

Challenges of the digital revolution: Digital disruption will continue to reshape the market in the decades to come. With changing customer behaviors, emerging competition from new entrants, regulatory implications and emergence of new customer ecosystems, it will be imperative for banks to embrace digital.

Opportunities from digitization of banking services: Digitization offers immense possibilities for the banking industry. Not just an effective cost-saving device, digital can offer customers new services and experiences. Banks need to explore the new world of digital adoption.

Given the challenges and opportunities associated with digital revolution, this report recommends the UK banking industry focus on:

  • Investing in forward-facing activity.

  • Enabling a faster adoption cycle for new services.

  • Evolving branch-based banking propositions.

  • Defining its role in emerging ecosystems.

  • Moving to more agile methods within banks.

  • Investing in resilient technologies and simplifying processes.

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Background

The rise of digital and how UK banks have responded

Banks in the United Kingdom have made significant progress in developing their digital offerings and a wave of innovations has increased usage of their digital services.

Core product sets are being digitized: To present an easy-to-use service to the end consumer, the UK banking industry has digitized the core product sets that underpin its propositions.

New banking models are emerging: In contrast to the more traditional “bricks and clicks” model, new digital-only banking models are emerging that will exploit lower-cost operations and offer online-only products and services to a niche group of customers.

Business banking lags in digital adoption: When it comes to digital innovation, the UK banking industry’s focus has been on personal banking customers. Business banking has received less attention due to the complexity of the products and the emphasis on maintaining a more intimate relationship with customers.

Looking forward, the banks that will lead the industry will be those that offer simple and integrated experiences. This will require further simplification of core services, as well as greater investment in cloud-based solutions.

Analysis

Along with immense possibilities, digital revolution also brings its own set of challenges for the banking industry. We outline some of these threats and opportunities for UK banks.

Challenges of digital adoption

  • Changing customer behaviors will make managing relationships more complex.

  • Technology disrupters may pose a threat by seizing market share

  • Regulatory requirements can hinder the pace at which banks adopt agile technologies.

  • Technology-fueled innovation will accelerate the emergence of new customer ecosystems.

Opportunities from digitization of banking services

Digital can offer new experiences to banking customers. However, to achieve this, the banking industry needs to constantly explore new possibilities.

  • How can banks utilize data to tailor their products more effectively?

  • How can banks use digital to maintain a balance between helping clients choose the right products and ensuring they have a digital paper trail to use as evidence for regulators?

  • How can banks use digital to ensure all channels combine to provide customers one synchronized service?

  • Can banks use technology, such as biometrics, to provide better services?

Recommendations

Our report recommends the UK banking industry focus on:

  • Investing in forward-facing development to identify the disruptions ahead. This is vital to ensuring banks meet customer needs and are not vulnerable to new entrants.

  • Working to create a faster adoption cycle for new solutions. Customers will demand that digital banking services meet the same standards of efficiency as they are used to getting from the likes of Amazon, Google, eBay, Apple and others.

  • Evolving branch-based banking propositions to create a seamless service that delivers the product efficiently—irrespective of the channel.

  • Defining its role in emerging ecosystems. To become value creators, banks need to leverage data to offer innovative solutions to their customers.

  • Changing the cultural balance within banks to a more agile system. This may mean more evolution in product design and committing to rapid technological change.

  • Investing in resilient technologies, and simplifying the processes and services that underpin its core product sets. This, ultimately, is the digital promise that banks will need to keep.