Danish banks like their Nordic counterparts need to change

"Think of the question, 'what is a bank'. Ten years ago that was a simple question but not any longer,”

Country manager for Denmark at TCS Ruchikar Dalela has signaled that change is necessary in Danish banks in order for them to survive against growing competition following a TCS benchmark study published this year.

In an interview with Version2, the Danish online IT publication, Ruchikar explained that a combination of complex legacy systems, a lack of automation, a static customer base and a culture resistant to change means that Nordic banks are lagging behind their foreign competitors.

As a global IT services provider, TCS has 350 customers in banking, finance and insurance. Working directly with customers in these industries provides ongoing insights into the technologies that work, those that are no longer up to par and those that define the future. Automation has always been part of the finance industry but that too is under pressure to adapt to change:

"Traditionally, automation has been equal to a glorified script that performs a list of, say, five things," explains Ruchikar, continuing; "It is not in itself particularly well adopted. But it still has much more potential than has been utilized today."

A good example of a function that could benefit from better automation is accuracy of payments. The Nordic banks are, when it comes to accuracy of payments, 9 percentage points behind the global standard of 99 percent. They are also slower; for example, a Danish bank takes on average 5.87 days to determine whether a payment is correct. The global average is 4 days.

Automation does not only increase speed and accuracy, it also becomes a predictive feature of customer behavior: "We are working with a bank in the Netherlands, which today can predict with great accuracy whether a customer will leave - eight months before it happens. And they can make a decision on whether to do something about it or let it happen, " Ruchikar points out.

50 years of development of isolated systems

Legacy systems are much in part to blame for the problems Danish and other Nordic banks face – an unavoidable symptom of technological developments happening over decades leading to unnecessary layers of complexity. Playing devil’s advocate, Ruchikar wonders why banks have been so slow to automate, compared to say, manufacturing, despite money being a ‘virtual commodity’.

"Banks were the first to be virtual as an industry, because money since the 60s has been very virtual," Ruchikar states.

In the interview, Ruchikar goes on to explain that Banks have ended up with a complex and silo-based technical landscape due to two things: (a) the common sense adage of ‘do not fix what is not broken’, and (b) multiple technology waves such as client server, internet, mobile platforms, social, etc. This complexity is an increasingly larger obstacle to create customer-centric systems which can seamlessly include automation as it becomes more mature.  The key is in creating a Lego-block approach to enable quick and deep results that customers can experience immediately.

Technology alone cannot, however, solve all the banks' challenges; there is also a need for a cultural change. Ruchikar continues that then the FinTech companies better understand the new Selfie Customer, which typifies not just the younger generation but a new behavior across all generations. The Selfie Customer is 24/7, seeks instant gratification, demands ultra-personalization, and is very community focused.

Changing regulations

Regulatory pressure to create data secure and transparent transactions also puts pressure on banks to perform better: "Before, the banks had full ownership of your data, and the data was part of their business. In a few short years, with the advent of the GDPR, it is the customers who own their data in the bank. Big changes are ahead," Ruchikar warns.

 At the same time Danish banks realize that they target a customer base that is not growing significantly. With pressure from small and large tech companies, technology is one key solution to create savings, which can be invested in to satisfy these new needs.

"There is no doubt that cost is one of the major problems affecting banks - whether they acknowledge it or not," says Ruchikar. "It is extremely important for banks to be in front, both in terms of technology and regulation. I don’t know many banks that are ahead in those two areas," he concludes.