Banking customers are increasingly frustrated with traditional banks versus new fintechs, according to Capgemini’s World Retail Banking Report 2022.
In the report, Capgemini stated that “three quarters of customers surveyed are attracted to the fast, low-cost, easy-to-use products and experiences” that fintechs make readily available, and that this would motivate them to consider switching to a fintech provider.
Half of respondents say “their current banking relationships aren’t rewarding, and they don’t feel emotionally connected with the bank, with 52% saying banking is not ‘fun’”.
But banks can fight back by embracing headless banking architecture.
What is ‘headless architecture’?
According to Accenture, ‘headless architecture’ means wrapping up all the business logic and functionalities in a set of APIs, which are powered by the specialized backends, and making them available so that any front-end channel can hook into these APIs and provide the customer experience desired for that channel.
Customers don’t want to log into their bank’s website, they want to streamline and automate their banking. Competing effectively with fintechs requires banks to think outside the website and embrace these headless technologies.
Digital business banking is becoming “distributed banking”. When a bank provides the access to information and payments autonomously – direct into the customer’s ERP system – they’ve gone headless. Traditional digital business banking requires manual interaction with a web page, while headless banking reduces or eliminates the need for manual processing.
If you think about it, the best digital banking experience is one that happens securely, efficiently, and without human intervention – a user experience with no user interaction.
Headless banking can level the playing field for banks versus fintechs
Traditionally, banks have more regulatory and compliance overheads than fintechs, making it easier for fintechs to quickly introduce and bring to market new services.
In addition, traditional banks rely heavily on legacy equipment that further impedes their ability to compete with fintechs, which have newer technologies and cloud-first mentalities.
Banking executives often cite ageing IT infrastructure as a major obstacle to providing easy-to-use, scalable services, but new banking-as-a-service vendors can ease these burdens by offering a headless banking option that levels the playing field with fintechs. For example, headless banking enables banks to allow their customers to quickly build their own business or corporate banking connections and automate their banking activities.
Customers can still use the digital platform to manage exceptions – maybe a mobile app to receive status notifications and submit payment approvals – but the mundane transaction processing becomes automated. These capabilities position the bank much more favourably – as the bank becomes a fintech itself.
It’s all about the customer experience
Customer experience is the number one objective for banks, but they often lose out to fintech providers offering sleeker, easier-to-use services, like payments.
According to Aite-Novarica Group, approximately 7% of small businesses are already utilizing a fintech provider for payment services, and that number is growing. Aite-Novarica further states that when it comes to payments and financial services technology, end users have high expectations for UX, often driven by recent innovations emerging at big businesses.
They are eager for financial services partners to help them automate processes, create market differentiation, and provide an accessible UX. And, business customers are increasingly frustrated with banks’ onboarding processes. Aite-Novarica’s research also shows that over half of businesses believe that the onboarding process at their financial institutions is too repetitive, complex, and manual.
But, headless banking, supported by banking-as-a-service vendors, brings numerous API connections, and can help banks quickly update and compete with newer fintechs for corporate and small business customers.Banks can deliver better payment, onboarding, and mobile banking experiences that their business customers want – delivering on the promise of creating a superior customer experience.
Easing banks’ IT burden while supporting digital transformation
Deploying headless banking options meets banks’ growing digital transformation objectives to minimize cost, maximize speed and maintain control.
Headless banking with an established vendor or application gives banks a leg-up on developing custom UX by leveraging their existing intellectual property and moving right to the customer-facing UX design and development.
Working with a third-party vendor that offers headless banking solutions helps banks’ IT teams accelerate progress and get these solutions to market more quickly. Banks should look for a vendor that delivers APIs, event streams and micro-services that together make up a composable banking solution to address all the banks’ needs.
By deploying a headless banking solution, banks will have more control over the UX and the ability to be nimbler, roll out new ideas and enhancements quickly, and generally enable them to be more responsive to their customers’ needs.
Additionally, a headless banking solution enables banks to enhance their digital image and meet rising customer expectations for usability and personalization.
In summary, as banks embrace the headless banking movement, they will not only ease IT burdens, but digitally transform their systems without investing in a major technological transformation, while providing superior customer experiences that will keep their business customers from jumping ship to newer fintechs.
After all, updating the cabinets and fixtures is a lot less expensive and time consuming than gutting the kitchen.
Jim Gillespie is chief product officer at Dragonfly Financial Technologies