Digital transformation // banking // Fintech
Contact Us → Contact Us →In the Nordic banking landscape, the resilience of traditional banking stands out as a key characteristic amidst evolving financial dynamics. We invited Mikko Ayub, and Erik Åkesson, both Senior Advisors at BearingPoint, to discuss the upcoming transformative decade for Nordic banking in Siili’s new ‘Composable banking’ podcast.
“Banking is back in business! After an extended period of zero and negative interest rates, good old traditional banking is back again,” Ayub says.
This resurgence not only signifies the banking industry’s capacity to adapt to changing economic climates but also embodies a dual nature: a stable and trusted approach inherent in traditional banking methods and the sector's ongoing challenge to effectively integrate and keep pace with rapid technological advancements.Setting the scene: tradition slows the disruptive tide
What we discovered during the talk, facilitated by Leo Vaskelainen, Siili’s Head of Banking, was that while the players within the industry will have to pay attention to sustainable practices and regulation, technology and customer experience, there is on common goal to rule them all. Mikko Ayub, who is also the former CEO of Aktia and recently appointed board member of LähiTapiola, explains:
“It comes across quite strongly that whatever banks and the financial sector do, they should secure the dividend flow to investors”, he says.
The basis of Ayub’s and Åkesson’s statements, besides their extensive personal experience in the field, is based on their comprehensive whitepaper The Future of Nordic Banking.
The authors conducted in-depth interviews with a diverse array of experts, contributing to a wide collection of information from various countries, perspectives, and backgrounds within the banking industry. In ensuring a comprehensive representation, both geographically and professionally, the interviews encompassed participants from all four Nordic countries.
Is there a consensus, and what does it imply? Erik Åkesson, with notable top management experience from, e.g., Danske Bank and HSBC and the startup world as well, shares that a single startup cannot disrupt banking because of the industry’s complexity. In a time where fintechs and startups challenge the status quo, this resilience reinforces the value of traditional banking's stability and trust.
“Banking is so systematically important for the society that it cannot simply be disrupted with one garage firm, or even a big one,” he states.
Disruptor keys: high volumes and simplicity
While traditional banking is doing well, Mikko Ayub still reminds us to keep an eye on banks on a larger scale.
”Banks might become more focused, whether geographically, in terms of products, or customer segments. We can have big techs that are disrupting, maybe not in the Nordics. So, I would keep a close eye on that”, he says.
Are there any business areas where disruption would be more probable than others? Ayub continues:
“Those would be business areas where there is simplicity and products with less capital intensity. There should be high volumes, and because of simplicity, it should be easy to automate and robotize. And if you look of payments as a business area, I think it fulfills all these criteria.”
Legacy is a burden and a blessing
Another hot topic within the finance sector is digital maturity, meaning banks’ ability to create value through digitalization. The big question for our experts, then, is if Nordic banks' digital maturity is an opportunity or merely a threat.
“The digitalization journey of Nordic banks started before the word even existed as we understand it today,” begins Erik Åkesson and continues:
"Problems arise when we keep building on systems that can be as old as 50 years, with layers of new systems on top of it,” he explains.
Åkesson admits that new players could take a head start.
“If you start a bank today directly in the cloud without any legacy, you are suddenly at a major advantage, while old banks struggle to develop anything quickly. This can of course apply to IT development, but also cultural development – resistance to change comes in many forms,” Åkesson notes.
For example, resistance to new technologies like cloud computing is often rooted in the organizational mindset, highlighting the need for cultural evolution alongside digital transformation.
"The finance industry is heavily regulated, and the barriers to enter are high. In the positive sense, we all want our money and our payments to be safe, but when you have a closed, regulated community, renewal and challenging the industry norms is more limited than in some other business areas,” Mikko Ayub remarks.
Finance needs to be as easy as ordering food
So, does this mean that the banking sector simply has an ongoing need for innovation and adaptation? Mikko Ayub offers an interesting comparison to food deliveries. If the complexity of banking, with its long list of questions, eligibility requirements and security concerns, were applied to food delivery, we would be very hungry by the time we got the food in front of us.
”Are you eligible to order this food do you have these allergies? Is this food something you like or you don't like? Do we have a good stock of that food? Then comes the transport, then the delivery. Is it secure? The food order process can be made really difficult if it was made as a process in banks have been made”, Mikko Ayub explains.
Why is this important, then?
”The average consumer is comparing [banking with other customer experiences] and they will be always left with the feeling that it’s difficult to take care of your finance. And isn't it difficult to be in contact with these insurance companies?"
It is, in other words, a great challenge to finance as an industry to make it feel as easy as ordering food.
Finance fosters the green transition
As the discussion revolves around the renewal capabilities of the finance sector, Erik Åkesson finds a comparison from yet another industry.
“The music industry has managed to go from cassettes to streaming, and killed off the old tech along the way.”
This means that, unlike the music industry, where older formats are phased out, banks often maintain both old and new systems simultaneously, leading to a less streamlined and efficient environment.
“So, banks need to rethink how to move IT and business closer together, to be able to shorten the development cycles. The same goes for ESG and business,” Åkesson explains.
Banks, in fact, hold significant power in efficiently channeling resources for environmental gains. Sustainability, also known as Environmental, Social and Governance (ESG), represents the undeniable megatrend of our era.
“Marketplaces will be used to solve problems in relation to global warming, and banks run marketplaces. In this sense, banks and the financial sector will be a tool for the green transition,” Åkesson says.
A tech-savvy blend of talent to rule the banking world
Is there a way for banks to integrate business and IT through smart employment? Sure. Banks often lack multitalented individuals who possess a deep understanding of both business and technology. Erik Åkesson explains:
”The key lies in having individuals with a strong and lengthy business track record who understand technological trade-offs. This is quite rare.”
As a concluding thought, what kind of individuals should future-proof banks seek to hire, and what skills are crucial? This message could also be relevant for all the young minds considering career moves:
“A customer-oriented, highly motivated and energized person with good data capability”, Mikko Ayub hints.
To do’s for future-proof banks
Banks that embrace change, integrate customer-centric approaches, adopt sustainable practices, and utilize open banking platforms and ERP systems will be the most successful. Here is our roundup of the crucial things to consider.
- 1. Embrace tech and innovation by updating IT infrastructure and utilizing new technologies for better customer experiences and operational efficiency.
- 2. Prioritize digitalization, address legacy system challenges, and cultivate a digital-first culture.
- 3. Integrate business and IT, fostering collaboration and aligned objectives.
- 4. Advance ESG initiatives, aligning business strategies with sustainability goals.
- 5. Focus on customer-centric solutions, leveraging data for tailored services.
- 6. Invest in talent development, emphasizing education and retention.
- 7. Stay adaptable to market trends and regulatory changes.
- 8. Collaboratively partner with fintech and tech providers for innovation.
- 9. Foster a culture of continuous learning and improvement.
Watch the Composable Banking podcast episode in full: