Member Article

Here’s to the branch-less bank

Some years ago NatWest bank ran a TV ad campaign which depicted an elderly lady struggling through a snowy high street trying to find a bank, only to find that every branch had been turned into a ‘trendy wine bar’. The message was that no amount of telephone banking (the Internet was then in its infancy) could replace the security and convenience of popping into your local branch and chatting to a familiar bank manager.

We might be seeing a more wine bars on our high streets in the next few years, according to HSBC’s chief executive Stuart Gulliver, who earlier this year predicted the end of the traditional high street branch. Gulliver’s forecast seems to be backed up by last year’s study by Nottingham University which showed that 40 per cent of all bank and building society branches have closed since 1989, suggesting that phone and Internet banking have played a key role in this.

If a majority of customers prefer the convenience and facility of digital banking, then keeping costly bank branches open is no longer viable. The risk for banks – and it is a major one – is that they move to a predominantly online or mobile model without addressing fundamental weaknesses in their IT infrastructure that could scupper their whole strategy.

Cumbersome infrastructure holds back banking apps

We might not be entirely ready for completely branch-less banking, but we’re clearly a nation in love with managing money through our mobiles. Recent figures from the British Bankers Association (BBA) show that mobile phone and internet transactions now total a billion pounds every day.

The research also found that, on average, 15,000 banking apps are downloaded each day.

With the success of mobile banking, you’d expect the leaders of the big banks to be congratulating themselves on the success of their digital strategies. True, there have been several digital initiatives by the established banks to push more digital services to users, such as HSBC’s roll-out of free Wi-Fi in 650 branches across the UK to encourage mobile banking. Behind the scenes, however, many of them are thinking about how the growth in the popularity of mobile banking will necessitate urgent upgrades to their IT infrastructure, applications and related management systems.

Delivering a first-class mobile service that can deal with millions of transactions a day relies on multiple different applications and complex IT systems working seamlessly. A succession of mergers and acquisitions has left many big banks with complex IT architecture that has been bolted together over time. These are not at all well-suited to next-generation technologies such as mobile payments platforms such as Paym and Pingit, digital wallets or peer-to-peer lending. In contrast, new competitors – the Internet-only banks, or the digital native startups like Metro or Atom – are not lumbered with outdated IT.

Great Expectations

Another pressure on the banks is increasingly high standards of performance and availability that consumers demand from their mobile apps. AppDynamics recently conducted research into consumer attitudes towards app performance which found that three in ten UK adults would change banks if a mobile app wasn’t up to scratch. Unacceptable app performance is surprisingly common, too: more than four in five people have deleted or uninstalled an app because they were unhappy with how well it worked.

Given the huge and growing amount of competition in the retail banking sector, mobile banking apps must meet the highest standards of performance and reliability regardless of time, location or device, while also providing a far greater range of services than traditional banking. To achieve this, banks must ensure customers have 24/7 access to key services, whether it be through proactively predicting when their applications will experience surges in traffic or spotting and fixing glitches as soon as they occur.

Providing perfectly-performing mobile apps that can deal with millions of transactions a day often relies on complex, distributed applications working seamlessly. It’s made harder still by the added complexity that comes from managing the mix of the requisite software, hardware, cloud services, app developers, third party web services and so forth. All this, piled on top of the creaking legacy IT systems that many traditional banks have accumulated, makes for a potentially risky situation.

Building an app strategy

To remain competitive in the new era of mobile-centred money, banks must ensure that they undergo the necessary business and digital transformation required to adapt to the new way in which customers expect to manage their finances. Burying one’s head in the sand is not an option. As the 2014 KPMG report, Reinvention of UK Banking, suggests, banks need to innovate urgently or risk falling behind their competitors.

To do this many banks are becoming, out of necessity, software-defined businesses (SDBs), either wholly or via a division or subsidiary. These SDBs are enterprises or organisations whose fundamental value proposition is defined, enabled or delivered through software. Notable examples include companies such as Nike, Expedia and the next generation of banks typified by Atom, the UK’s first all-digital bank which launches in 2015.

These businesses typically have highly complex IT architectures, with all the potential risks outlined above. To counter this complexity, SDBs employ sophisticated analytics and monitoring to help mitigate risks and give them certainty about their software and operations in real-time. This ‘application intelligence’ should be able not only to identify availability and performance problems, but to pinpoint which users, devices or locations have been affected, and highlight the root cause of errors -right down to the code level.

Europe’s banks have experienced unprecedented and sustained levels of strain in the last seven years. As optimism and some form of stability begin to emerge banks must ensure that, having survived the worst economic storm in a century, they are not to be beaten by a new crop of digital upstarts. If banks can develop a winning app strategy, perhaps we will really see the demise of the bricks-and-mortar bank. And while there will always be those who will lament the disappearance of the traditional high street branch, they can at least console themselves with something nice and chilled from that trendy wine bar around the next corner.

This was posted in Bdaily's Members' News section by Tom Levey .