AI meets PSD2: Tracking the digital transformation journey of UK retail banks

Digital transformation is by no means a new topic. It is a trend that we have seen gradually evolve across all industries in the past few years, with the retail banking space having to adapt to changing customer expectations, and new regulatory requirements. It is therefore no surprise that in GFT’s annual Banking Expert Survey, it was revealed that all UK retail banks now have a digital transformation programme in place.

This is a positive sign and shows that digital transformation strategies are perhaps now just part of ‘business-as-usual’ in what is a rapidly evolving digital landscape. What is important, however, are the specifics of these strategies. As consumers become more open to sharing their data in return for specialist advice and lower costs, are retail banks set up to analyse and utilise the goldmine of data they have available? Also up for consideration is how banks can respond better to customer enquiries in a 24/7 world – is a chatbot the right solution?

Perhaps most important to note is that the financial landscape is changing. Open Banking, accelerated by PSD2, will completely change the way that banks need to service their customers. Are they ready?

Moving to new models

What the results of the research show most profoundly is the positive sentiment towards the Banking as a Platform (BaaP) model which banks are moving towards, an important finding in light of the changing banking landscape. This model is whereby banks move away from a ‘full stack’ technology environment that requires them to own all of the technology in which they transact their business, towards a model of not owning all the technology, instead servicing customers and taking service requests potentially using a combination of their own and other third party solutions. A great example of this model is how banks have embraced Transferwise to conduct international payments, rather building and maintaining the required infrastructure themselves at much greater cost.

We believe this is a trend that will increase in the near future. 77% of financial institutions already agree that this model leads to greater customer engagement and a further 67% say that it provides the ability to focus on creating new applications. Fidor bank in Germany clearly demonstrates how a bank can operate with such a platform approach, relying heavily on API enablement, allowing them to innovate rapidly and provide services based on customer needs.

In the UK, we are seeing a greater awareness of this model, with the banks investing heavily in innovation and forging partnerships with FinTechs and other organisations. Our results also show that, globally, UK retail banks are leading the way with BaaP implementation, with a third (33%) having a strategy designed and implementation started and a further 17% having defined the strategy, with plans for implementation.

This is a positive way forwards for UK banks – they must move away from the typical historic legacy infrastructure, to being more open to the consumption of services from multiple providers. Of course, the complexity of existing legacy is significant and was identified in our research as a top challenge when moving to this model (67%). It is, however, a vital step if UK banks are to truly service the customer of the future, to innovate and enhance their core banking revenues at the same time.

Embracing artificial intelligence

We could not possibly have conducted a digital readiness survey without also looking at how banks’ artificial intelligence (AI) plans are shaping up. We have seen a lot of buzz around this topic lately, with viable use cases within the industry beginning to emerge, such as the increasing use of customer service chatbots. From our findings, almost a quarter of UK retail banks now see AI as strategically important to their business (23%) with only Brazil taking this kind of technology more seriously. A further 40% say that implementing AI solutions is more of a tactical change.

But, whether tactical or strategic, it is a technology that is making its way up the agenda for UK retail banks. The readiness of IT systems in the UK for AI is also higher than average in all aspects compared to other regions globally, from having a scalable infrastructure in place to the availability of technicians that know such systems. With this readiness, 65% already use or are looking to implement virtual customer assistants.

These results show positive signs for the UK retail banking industry. It is clear that banks are beginning to put the customer at the heart of every decision and are realising that fulfilling customer expectations might not be achieved in the same way as it once was. Instead, retail banks are looking to new models, namely BaaP and Open Banking to ensure that they have the capabilities to innovate and provide new services and products. It remains to be seen how UK retail banks will continue to evolve, but they are certainly making great strides in the right direction.

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