When and how we bank is no longer determined solely by the opening hours of our local branch, generations young and old expect easy, quick access. That’s thanks in no small part to challenger banks such as Revolut, N26 and Monzo raising consumer expectations.
For established banks, their legacy may be an asset, but competition means it can only carry them so far. They, in turn, have recognised the need to deliver digitally in a way that feels instant and is always available to the end user.
When it comes to winning younger customers, the first test for legacy banks is making sure their offerings feel modern from the off.
“Onboarding and app experience are key differentiators between neobanks and legacy banks,” says Eoin O’Connor, partner and head of fintech at A&L Goodbody. “Customers now expect to be able to open an account in minutes, access intuitive systems, see all products and services in one dashboard, receive real-time notifications and be able to search years of transactions for spending insights.”
RM Block
Millennials, most of whom are now hitting middle age, and Gen Z users aren’t just judging banks on their experience managing finances. A bank is expected to deliver as easy an experience as a food delivery or taxi app.
“We have entered a period where, increasingly, income generated by banks will come from a customer base [that is] often classified as ‘the second generation of digital natives’: a generation of customers who have grown up with advanced, always-on technologies from their childhood,” says Feilim Harvey, financial services partner at PwC Ireland.
That’s why always available has become the market expectation for banking apps. Late opening on Thursday would horrify the younger user as the limit.
That’s not to say legacy banks are without their strengths – far from it. Incumbent banks have done excellent work building up customer relationships over decades and still tend to have a broader product offering than challenger banks. The task now is to use these advantages as leverage to win in the digital space.
“The historic customer relationships, trust and regulatory standing, combined with full-service products like mortgages, give traditional banks an advantage that neobanks can struggle to replicate. However, that same institutional legacy means traditional banks’ technology and core systems can lag behind and may struggle to provide real-time, API-driven banking,” says O’Connor.
Of course, being around so long and doing so much brings with it a lot of baggage. For legacy banks, moving everything to a digital first and instant-access format platform is complex.
“This challenge is largely driven by an industry phenomenon known as ‘technology debt’. This is where more traditional banks face the additional challenge of maintaining and updating their legacy IT systems, some of which have been in place for 30 or 40 years,” says Harvey.
The decades-long use of such systems means the challenge is a lot greater than developing an app with a seamless user experience.
“Continuing technology investment will be key to giving customers what they want. A modern core platform that can develop in a modular manner, allowing efficient responses to new product launches, regulatory change and other demands, will be a huge asset to traditional banks,” says O’Connor.
There are technologies that can help banks to advance faster, with AI offering a big helping hand in this respect.
“New technology, in particular AI, is providing an opportunity for traditional banks to escape the shackles of legacy technology in a more purposeful and quicker manner than they have heretofore been able to do,” says Harvey.
This is about more than just copying these neobanks or challenger banks. If anything, the legacy institutions should be the ones seeking to challenge what neobanks are bringing to the market.
The core strengths of a legacy bank are built on trust, resilience, a broad range of services and, critically, far more experience dealing with the regulatory environment.
By leaning into these strengths and combining them with the speed and simplicity demanded by the modern consumer, established institutions can do more than compete with the new kids on the block. They can surpass them.
