Retail banking: Why specialization demands experimentation

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Specializing in niche banking services can be risky. This is why successful niche banks use systems that make it easy to experiment with different products.

Retail banking is an industry in transition. Automation and digitization have lowered barriers to entry for new banks, while also triggering changes in consumer behavior.

One of the modern trends is for banks to specialize in select services, such as offering sales finance, SME banking or other products tailored for a specific community of people. This strategy has seen both incumbent players and new entrants realize business opportunities that simply didn't exist a few years ago.

But what happens when your customers start asking for a product you don't offer? Or when regulations drive the market in another direction? In the European Union, for example, new legislation around unsecured loans is forcing banks to make business-model changes and diversity in their product offerings.

This is why niche banks need to be able to experiment with a variety of different services and be prepared to move quickly. And that means embracing the opportunities for agility and innovation that modern banking systems offer.

"As the legislative part of the banking business is increasing and will put pressure on margins, banks need to start looking for new financial products to optimize and diversify their business," says Banqsoft CEO, Terje Kjøs.

"But a scenario we are seeing more frequently is a traditional bank launching a parallel specialized product, yet then implementing outdated processes and ways of working. These initiatives don’t reach their full potential, as the bank is not able to move quickly with the market."

"When you launch a specialized banking product, you need to go all in. This means setting up a parallel bank, changing internal processes, workflows and systems so you can realize all the benefits of a more agile setup," says Kjøs. "If it is not easy to launch a new product in the bank’s system, then it will cost the bank too much money and the business case for the innovation is much less attractive. Also, since time-to-market is essential in these niches in retail banking, how fast the new product can be set up is very important."

"Most new banking entrants have appealing business cases and have found differentiators that draw the attention of their targeted customer groups. They just need the right technology partner to help them with time-to-market," says Kjøs.

Banqsoft offers a standardized and highly-automated end-to-end concept that meets new banking requirements for open architecture and flexible customization. The versatility of the Banqsoft platform – combined with the know-how of our industry experts – makes it quick and easy for banks to bring new products and services to market.

Read our customer case about Instabank.

Download our whitepaper discussing four priorities for retail banks.