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The Digital Banking – a Facade?

Across the globe commercial banks all seem to be singing from the same song sheet. Uttering hopes of a new and better digitalised future, leaving their old legacy systems behind. 

Earlier this September, Sweden’s Handelsbanken made an announcement that it will kick off the transition to strengthen its digital consumer offering and close almost half of its branches (380 to 200). Naturally this strategy was seasoned, fried and served up to the public to seem as if they were embracing the inevitability of a digital future with both arms. 

In fact, Euromoney’s Peter Lee believe this to be a play in disguising the enormous job losses that followed:

Management teams always like to dress up cost cutting with starry-eyed talk of visionary plans for a brighter future. After all, they don’t want those staff who remain and have to pick up the work of their former colleagues to be totally demoralized.

Peter’s suspicions of the team were later confirmed as almost immediately following Handelsbanken’s announcement of lay-offs, the share price fell 30%. Moody’s analysts advocate that this momentous shift towards cost-efficient online banking will drive financial performance in the mid term, they may be sacrificing the stewardship that they have demonstrated in the past.

With banks facing severe headwinds in terms of profitability and COVID catalysing the transition away from cash, many senior bankers believe that it is the perfect time to pursue digital banking. 

But are they making a mistake?

Many believe that with an increasingly digitised offering, financial products become increasingly commoditised and larger banks are in fact eroding their own competitive advantage, this being access to capita, quality & provision of  bespoke solutions. 

How digital banking initiatives unfold remains to be seen and but the jury is certainly still out with regard to their success. However, one thing is for sure, whether they roll out digital banking or not – banks must continue to improve their legacy technology. 

In terms of implications, there will continue to be demand for less established businesses to build proprietary tech that can be bolted on to existing infrastructure. Companies like ClearBank and nCino who have pioneered cloud based operating systems for the financial sector will continue to crop up and present exciting new ways of doing things.

Over the years we at Polestar have worked with a number of fintech businesses seeking to disrupt the status quo, in fact we are looking at how we ourselves can use technology to improve business’ access to to funding.  The banks will need to develop this themselves or find themselves increasingly irrelevant as funding will come from broader spectrum of sources.  So maybe after all Handlesbanken is on the right track.

Management teams always like to dress up cost cutting with starry-eyed talk of visionary plans for a brighter future. After all, they don’t want those staff who remain and have to pick up the work of their former colleagues to be totally demoralized

By Shaan Bharwani on 30/10/2020