In an ever-increasing digital world, being seen as ‘traditional’ can sometimes be like having a millstone around your neck. In the world of banking, the division between traditional and challenger banks is becoming even more cutthroat.
In a recent post by Currencycloud, the company examined the cultural differences between traditional and challenger banking and what truly sets them apart following a recent roundtable discussion hosted by the company.
For traditional banks – their cultural currency comes from reputation. Many traditional banks, Currencycloud claim, place a premium of the value on their brand and that customer know their name and feel secure with that bank.
This reputation has been earned over decades and through delivering reliable performance as well as adopting robust systems, processes and compliance protocols. However, these factors in themselves can sometimes hinder innovation.
Currencycloud said, “Legacy technology makes it difficult to adopt new, more modern technologies. Regulatory burden, pre-established processes, and a preference for ‘how it’s always been done’ weighs heavily on any significant efforts to innovate. Fears of redundancy also can get in the way of potential transformation.”
These challenges are becoming ever clearer as digital challenger banks continue to make their way onto the banking scene – and traditional banks are falling behind. Why? Currencycloud believes this is because traditional banks cannot afford to simply turn off all of their legacy technologies supporting critical business processes and start fresh.
While challenger banks are roaring ahead in many areas digitally, traditional banks hold one key advantage – many of them are ‘safe harbours’ in the words of Currencycloud – in that if a new initiative goes wrong, the bank isn’t going to fold. On the flip side, this can also make it less likely the bank takes chances of ambitious and creative initiatives.
For challenger banks, many of their teams can comprise a range of employees who have strong technical and software engineering backgrounds – however, these creative abilities are stymied by the fact a big gamble on a new technology could financially make or break the company.
What are the two banks’ biggest challenges? Currencycloud believes for traditional banks, the biggest challenge is learning to overcome their ‘institutional inertia’ against change while staying compliant. For challengers, the main challenge lies in building trust and diversifying their service offering.
With these challenges and restrictions considered, the roundtable participants suggested that collaboration was the best path forward when it came to dealing with these issues. When it comes to collaboration, Currencycloud believes the two forms of banks have two options open to them – collaborating together and collaborating with FinTechs.
On the former point, Currencycloud outlined, “Challenger banks and traditional banks are often cast as adversaries, but they’re far better suited to act as partners. Challenger banks need the infrastructure and regulatory coverage to provide more services. Traditional banks need the innovative technology and agility to serve modern customers’ ever-growing demand for faster, better, more transparent and more cost-effective experiences.”
The company remarked that as a result, some traditional banks are making the transition to serving as sponsor banks, which are banks that partner with FinTechs and challenger banks to provide them the infrastructure necessary for all the services customers expect from a bank. In return, they gain the niche expertise of the challenger bank.
Currencycloud continued by saying that this kind of relationship leaves both parties stronger than they would have been apart. “By working with traditional banks, challenger banks can learn more about the challenges, opportunities and industry best practices that come with being a bank. Traditional banks, on the other hand, get to see how challenger banks use cutting-edge technologies to elevate the customer experience and solve new problems, such as the move to cashless transactions and digital payments following the pandemic.”
Similarly, rather than collaborating together directly, Currencycloud added that each can overcome their challenges by partnering with individual FinTechs of their own choice.
Currencycloud concluded, “Just as with traditional banks, challenger banks and Fintechs that collaborate with one another also gain a mutual learning experience. Fintechs get to contextualize their niche service offering within the larger banking service spectrum, and challenger banks get to see how specialists are executing on a slice of their service offerings.”
Read the full post here.
Currencycloud, recently teamed up with Switzerland-based Velanis AG to support the launch of Swinto.
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