The Dual Imperative in Banking: A Balancing Act Between Operational Efficiency and Innovation

Manage the Bank's Operations i.e Run the Bank (RTB). Innovate the Bank's Landscape i.e. Change the Bank (CTB). Over the years, these two imperatives have emerged in the ever-changing banking terrain. They stand out prominently as the banking sector is facing the impact of market shifts that are challenging traditional business models and urging it to choose between maintaining business-as-usual operations or driving transformative changes through digital-first infrastructures.

In this article, we delve into the nuances of "Run the Bank" and “Change the Bank” and explore their symbiotic relationship within the banking ecosystem.

Running the Bank: The Pillar of Stability

RTB refers to the core operational processes that ensure the smooth functioning of financial institutions. It encompasses day-to-day activities that underpin customer transactions, risk management, compliance, and regulatory adherence. Essentially, it means ensuring uninterrupted operations, maintaining active system functionalities, minimizing downtime, and upkeeping legacy infrastructure.

For many banks, RTB is a strategic choice that can imply stability and operational efficiency and provide:

• Risk Mitigation
• Regulatory Compliance
• Operational Efficiency
• Financial Stability

But with the banking sector undergoing a seismic shift driven by innovative technologies, Fintech disruption, and cloud-based operations, traditional banks are reevaluating strategies to stay relevant in the face of evolving customer demands and achieve more than just the RTB goals.

This is where the concept of “change the bank” comes into play - a shift that disrupts the traditional banking paradigm by embracing tech modernization to ensure future-ready banking experience.

What is Changing the Bank?

CTB is the transformational step that aims to make significant changes to a bank’s operations, processes and systems. Unlike the past, where the financial services sector relied heavily on physical assets, CTB propagates virtual operations that take place through tech platforms. One example is “neobanks” like UK-based Revolut, that are revolutionizing the banking landscape without maintaining any form of in-person customer interface. The FinTech has garnered 1.5 million customers in the UK, of whom 350,000 are active daily and aims to boost user count from 600,000 to at least 10 million by the end of 2025.

By leveraging AI, cloud and analytics, neo banks and “challenger" banks are enjoying significant advantages of reduced cost framework and modern IT architectures. They are reaping benefits in terms of:

• Fast data access, which translates to enhanced digital/online services 
• Expedited product launch and pricing flexibility
• Cost-effective scalability and core system operation
• Agile operational approach, which makes it easier to adapt quickly to market changes
• Real-time payment capabilities
• Through open banking connect with third-party services, which helps in simplifying customer onboarding processes 

Changing the bank is not just about staying current, it is a strategic move to enhance efficiency, elevate customer experiences, and create new revenue streams by harnessing the power of technology. Though it comes with its benefits, one must remember that going straight to Change the Bank may not be a proper transition but more of a mindset that defines the way processes are deployed. 

How Do Banks Adapt? 7 Approaches That Bring Clarity

Adapting within the banking sector is a perpetual challenge, particularly when navigating through external factors like regulations, interest rates, and economic volatility. This calls for a delicate balance between efficient day-to-day operations while establishing a roadmap of sustainable change. Here are seven strategic considerations that can help banking leaders identify gaps in their transformation agendas and cultivate a capacity for success:

1. Keep an eye on the market: Always check how your plans fit with current market trends and risks.
2. Smart budgeting: Plan your budget with both daily operations and big changes in mind.
3. Build data and analytics capabilities: Adopt a multidisciplinary approach that addresses front-office needs and risk management.
4. Empower leaders to navigate change: Develop a management perspective that aligns run-the-bank and change-the-bank initiatives.
5. Continuously enhance teams' skill sets: Bear in mind how trends and transformations will impact employees' roles and responsibilities and act accordingly.
6. Strategically position your institution: Assess operational capabilities in the evolving market
7. Carry out cross-organizational communication: Aim to involve stakeholders at interdivisional and enterprise levels.
8. Develop decision-making agility: Place leaders in influential roles to grow amid technological, competitive, and geopolitical disruption.

In an ever-changing environment, leadership teams must cast their gaze through the uncertainty, grasp the extent of ongoing evolution, and make bold choices to win in the long run.

“For banks, clarity of purpose paired with digital banking maturity is a winning combination.”

-Accenture

In Conclusion: The Unbreakable Nexus

Whether you run the bank or change the bank, these strategies are not mutually exclusive; instead, they inform and reinforce one another. Here are 4 paths banks can choose to switch from legacy core banking systems to modernization:

• Wrap the Core: Revamp user interfaces without altering the backend by wrapping the legacy core with service and innovation layers. Use cloud-native structures and advanced web tech for new UI, optimize batch workloads, and integrate APIs for seamless compatibility.
• Complete Overhaul: If you’re aiming for a full transformation, aim to articulate interim deliverables through proof of concept to ensure a smooth User Acceptance Testing (UAT) stage.
• Progressive Modernization: For larger banks with intricate legacy systems, selectively modernize modules over time, based on business and IT needs. Allocate resources more efficiently while maintaining safety in transformation.
• Greenfield Approach: Establish a parallel Greenfield Digital Bank alongside the legacy stack. Combine traditional bank advantages with challenger bank agility. Scale, deliver digital experiences, and foster innovation with a cost-effective, agile infrastructure unmatched by legacy systems.

As experts within the banking ecosystem, we understand that embracing this duality is the key to not only surviving but thriving in the intricate landscape of modern banking. With our expertise, and intelligent digital technologies, we’ll reshape your business from a customer, community and industry perspective.  

With the power of the cloud, you’ll benefit from democratized technology, increased speed to market, unlocked opportunities via the cloud API ecosystem and enter new markets in a speedy, agile and cost effective manner. 

Explore our services to 'Run the Bank' if you seek operational excellence and 'Change the Bank' to transform the way you bank. Learn more from our experts today.