UK banks under rapid digital transformation in post-pandemic

By Puja Sharma

There’s no looking back for traditional banks in the UK, with 84% believing they will not revert to type once the pandemic subsides.

Despite this, there was little belief that this would sway the current trajectory of challenger banks; nine-in-10 respondents disagreed with the notion that it would now need to find a new platform from which to compete with traditional ones.

During the pandemic, UK banks underwent a rapid digital adoption process, with 89% accelerating their implementation of technology by five years. According to research by SAS, the leader in analytics, a mixture of UK challenger and traditional banks were surveyed about how their IT infrastructure, processes, and priorities have changed during the pandemic.

With 93% accelerating their digital adoption by five years, traditional banks have overseen a particularly marked rise in the adoption of new technologies, compared to 87% of challenger banks. Such a drastic technological shift has led the vast majority of them to believe that traditional is now more competitive.

Same technology, different priorities

Due to their newfound competitivity, four-fifths (84%) of banks were confident that traditional banks would press ahead with digital adoption and not revert to type once the pandemic subsides. Despite this, there was little belief that this would sway the current trajectory of challenger banks; nine-in-10 respondents disagreed with the notion that the challenger would now need to find a new platform from which to compete with traditional banks.

Instead, through increased automation, challenger banks have set themselves an ambitious target of achieving a cost-to-income ratio of 35% by 2023. In comparison, traditional banks will be targeting a ratio of 47%.

Their priorities differ when it comes to how traditional and challengers will use technology. For example, two-thirds (65%) of challenger banks saw offering their customers a more personalized service as a key point of differentiation, compared to just half (53%) of traditional banks. Meanwhile, a further two-thirds (65%) of challengers saw being data-driven as a competitive advantage, compared to just a third (33% of traditional.

Despite this relatively low interest in being data-driven, more than half of traditional banks recognized the use of artificial intelligence and machine learning as areas where they can get a competitive edge, compared to challenger banks. Linked to this is the fact that four-fifths of all respondents agreed that investment in data analytics over the next three to five years would be “significant”, the strongest of the response options available.

“While traditional and challenger banks have accelerated their adoption of technology rapidly during the pandemic, their priorities remain broadly the same. In essence, as things stand, they will be using the new technology to double down on their pre-existing competitive advantages,” Johnny Steele, Head of Banking, SAS UK & Ireland, said.

“However, this is an opportunity for banks to innovate differently. Traditional banks, for example, can use their deep resources to provide a broad portfolio of services to their customers, as 13% are already prioritizing. At the same time, though, through cloud-based advanced analytics, traditional banks can ensure that these new services, and the ones they already have on offer, are deeply personalized and easy to use. This means being able to complete banking processes almost entirely online, without having to go in-branch or speak to someone on the phone. Increasingly, this is what customers demand from their bank. Therefore, whether it’s challenger or traditional banks, it’s crucial that they can offer a frictionless service which is also fairer and simpler for their customers.” he added.

Reaching out for a helping hand

Banks will have to increasingly manage data workloads via the cloud to get full value from the technologies they have adopted. However, three-fifths of them cited security and compliance concerns as a key inhibitor to cloud adoption. Meanwhile, a large majority of traditional banks called out legacy system integration as the main barrier.

Despite these barriers to cloud adoption, 91% of challenger banks selected technology innovation as the most important factor when choosing applications to support the core banking system, followed by improved security and better data management. For traditional banks the results were similar, but improved security and better data management were ranked slightly higher than technology innovation.