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European banks getting rid of human interaction in retail services

Traditional banks know they need to modernise IT to retain market share, but replacing legacy systems is like defusing a bomb

More than half of Europe’s banks will remove the need for human interaction in retail services as their IT leaders recognise that new players in the sector are automating customer services through technology.

Research from Accenture spin-off Avanade found that 85% of senior IT decision-makers at banks across Europe acknowledge that disruptive business models from challenger banks are overtaking traditional methods to serve retail customers.

In the survey, 48% of respondents said they are now facing more competition from fintech firms, but in the longer term they fear potential competition from the likes of Amazon, Facebook and Google more.

Recognition of the threats posed by technology companies such as Google is not new. Back in 2015, research by the Economist Intelligence Unit (EIU) found that banks were more concerned with competition from technology companies than from new banks or payment platforms such as PayPal. Tech companies’ huge processing power and their ability to launch new products and services quickly gives them an opportunity to move into banking.

Most respondents to the Avanade survey (86%) know they have some catching-up to do in offering customers the level of customisation they want, and most also accept they will have to spend more money to improve this. But the traditional banking sector is restricted in the resources it can free up by the huge cost of maintaining complicated legacy IT systems.

Paul Bowen, banking lead at Avanade Europe, said: “European retail banks are well aware of the challenges they need to address to reconnect with customers, but their reliance on legacy IT systems, built up over 40 years or more, is acting like a lead weight, slowing them down while new entrants, both fintechs and established technology giants, are streets ahead.”

In the Avanade survey, 94% of respondents said they think modernising IT systems would help them keep up with companies with digital capabilities. “Banks must discard their old ways of doing business and invest in technologies that empower their workforce to deliver a more personalised service,” said Bowen. “That help build a more seamless engagement with customers across every channel.”

Integrating new products and services into a traditional bank that has a mish-mash of joined-up systems is fiendishly complex and banks need to overcome this or face an uncertain future.

Here are some potential options for replacing legacy systems outlined by a senior banking IT executive:

  • Forget changing systems and try to remove complexity. This is what often happens when the people making the decisions are near retirement or can’t stomach a multi-year, multibillion-pound project.
  • Buy a modern core banking platform off the shelf, get it working, connect it and migrate everything from legacy systems onto it.
  • Acquire one of the growing number of new banks with their state-of-the-art IT, and eventually move the whole bank onto these modern systems, which can be tailored to the bank’s needs.
  • Spend money on a state-of-the-art system and make it pay through acquiring other banks and moving them to the platform.
  • Artificial intelligence (AI) could solve complexity issues. For example, IPSoft’s AI customer service platform, known as Amelia, can read all instruction manuals and automated fixes and could possibly support legacy transformation.

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