As a former real estate developer and home builder, I have had the opportunity to build a variety of homes to meet different needs. Generally, home builds can be divided into two categories: a cookie cutter rail home or a uniquely designed custom build. A track house is a standardized plan – slight adjustments can be made, but ultimately most track houses have similar layouts and designs, with small customizations the owner can make like colors and designs. finishes. Custom construction, on the other hand, allows a home builder to design to the needs of their specific lifestyle. A large family can design a house that meets the needs of each family member, a car enthusiast can build a larger garage, and a chef can build a kitchen to suit their needs. Although a custom build may be more expensive and require a much longer lead time, the homeowner can get a home that perfectly meets their living needs.
Today, as I look at the banking industry and how business models evolve, I see that our plan and our infrastructure must evolve with it.
Five years ago, if you looked under the hood of every bank in America, we’d see the banking version of a trail house – same kind of systems, same kind of capabilities, same kind of people working there . This was especially the case with community and regional banks – many relied on technology vendors who standardized products and services to provide thousands of smaller banks with access to competitive technology. Fast forward to today, two years after a global pandemic catapulted us into a digitalized future, it’s fair to say that standardization in banking no longer exists.
A McKinsey & Co. survey found that the COVID-19 pandemic accelerated the adoption of new technologies by years — and changed business forever. Like many industries, banks and financial institutions have had to adapt and accelerate their digital transformation strategy amid disruption caused by the pandemic.
Take geographic footprints for example – where banks were previously limited to their specific area or region, digital capabilities have eliminated that limitation. Banks can now access broader markets and offer digitally enabled services. And while there will always be a place for in-person financial services, technology is still improving the customer experience in some cases.
Additionally, with the implementation of digitized systems and processes, banking is becoming a niche business and a specialized business model is becoming more apparent in the industry. We move on to custom builds. The fact is that by specializing, it allows banks to have fewer competitors and create additional income.
Whether a bank is hyper local, specifically for fintech, or focused on small businesses like us, the idea that you can now choose your financial institution (FI) based on your needs, interests and style of life is much more attractive to the customer and can help banks focus on profitability in their specialty at the same time.
The world of technology in banking has also seen a drastic change over the years. Where there used to be three to five big technology vendors that offered products to banks of all sizes, that’s no longer the case. There are now hundreds of technology providers for banks to choose from, all of which offer banks the ability to create solutions for their unique audiences. From end-to-end solutions and core technologies to technology that handles mobile app development and various types of cables and lending services, the possibilities are truly endless.
The ability to choose who your partners are gives institutions the ability to create a type of niche financial organization. Take BoeFly for example, they work with our bank and target a very targeted segment of the market – accelerating the growth of franchisors and franchisees. Similar to this, Built is a fintech company and construction finance software leader that works with banks that have a large portfolio of construction clients. They have created technology that simplifies the lending and spending process for the entire construction finance ecosystem. Both allow institutions to partner and offer specialized services to niche audiences.
As another example, larger cloud-based technology platforms like nCino provide an end-to-end solution by integrating with the core of banking, allowing banks to create workflows and approval processes, replacing manual processes. Ultimately, enabling banks and FIs to better serve their customers.
With innovation comes new, uncharted territory. So, even though risk mitigation in the banking sector is not new, banking institutions now face different types of risks. The use of different types of technologies creates risks. Whether it’s opening up platforms with various Application Programming Interfaces (APIs), embracing blockchain, investing in crypto, or otherwise integrating with other financial companies to provide information, their affiliate risks continue to grow alongside the capabilities that banks can bring.
As the world of technology continues to create new products and services, it is important for financial institutions to understand their own level of associated risk and be able to monitor it. Knowing when to call on a fintech partner who can help banks mitigate the accompanying threat is crucial. It is also critical to understand that a human examining an AI process for potential risks will never parallel a risk mitigation technology that matches the same level of intelligence and pace.
The world is changing at a much faster pace than ever before, and according to a Forrester report, technology is expected to grow 6.7% in 2022. It’s clear that banks are competing in a different way and will continue to build unique business models as their competitive advantage. From risk to technology infrastructure and organizational charts, the banking industry’s wave of innovation will create a new kind of custom builds…