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  1. Spotlight on Policy
20 September 2022updated 17 Jan 2024 6:40am

Why the banking “arms race” is a fight for the best people

To remain on top, financial institutions must prioritise talent.

By Chris Smith

Where once the term “arms race” conjured up images of international politics and the exploration of space, the term has increasingly taken on a new meaning in the competitive world of fintech.

Back in 2020, a report from card issuing platform Marqeta characterised the post-Covid-19 world of banking in these terms. The banking “arms race” refers to the increasing competition between banks to provide the most up-to-date technologies, products and services while maintaining a loyal customer base.

Banking is a far cry from where it was ten years ago. The pandemic has changed the way that customers interact with their banks, but even prior to this the emergence of challengers, such as Monzo and Loot, were attracting customers with their new, agile and customer-centred approaches.

For banks, the need to attract and retain customers is paramount to the success of the organisation, and that means that legacy banks have had to move fast to respond to these challenges.

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As the UK faces a recession, the need for banks to be agile and reactive is even more important. Customers depend on their providers to manage their money and gift them piece of mind and products to keep track of their finances. The looming crisis could make or break many institutions – they have no choice but to innovate.

The most critical aspect of innovation is agility. Banks need to be able to scale up rapidly so that they can deliver new technologies on demand and respond to changes.

Technologies cannot be inhibited by speed or deployment, so technologies such as cloud-based services are fundamental. A report from Deloitte suggested that between 2016 to 2018 alone there was a threefold increase in the number of organisations moving to cloud-based services, with the financial services industry accelerating the movement in the past five years. Today, cloud sales are increasing faster than ever.

The use of data and AI is also growing in importance. These technologies help businesses to get ahead of the race. They do this by helping firms understand and predict future trends in consumer behaviour, and work out how best to deploy new products and services, evaluating whether they are worth continuing investment. A 2021 article from Deutsche Bank set out the various ways that AI can transform banking: “Algorithms can help bank advisors find funds, bonds or shares that suit customers,” as well as predicting future trends, supporting sustainability transformation and addressing financial crime.

As important as all these are, the most vital part of the “arms race” is quality of talent within businesses. Without the necessary human agility – hiring and retaining people with the right skills, ambitions and talents – businesses cannot make the most of these valuable tools.

But this is also where the challenge lies for banks. Never has there been so much competition for employers. Suddenly, many organisations are remote for the majority of the week, rendering it harder for employees to connect and feel the same sense of belonging and loyalty they once did.

It also means there are many new potential opportunities for workers; people are now no longer restricted to unsociable hours or specific locations – people can work from anywhere in the world and change jobs seamlessly.

Banks don’t just lose talent to other banks, either. Many other types of organisations offer attractive experiences for potential employees, where the pool of desired skills is so vast. The Office for National Statistics reported that during 2020, of the 6.1 per cent of employees that changed occupations, more than half switched industries entirely. Banking needs to make itself attractive not just in comparison to its direct competitors, but across industries.

So, what do workers want? Post-Covid, workers want flexibility. The first thing banks can do is ensure that people have the flexibility to work wherever they want, in the style that they want, and with the best type of technology.

This cannot be done without investing in the quality of their workers’ experience. In HSBC’s 2021 annual report, much of the focus was on what employees want, building their skills and ensuring that opportunities for promotion are available.

But that isn’t to say that institutions can ignore salary. For many employees, salary remains one of their top priorities, alongside work-life balance, career progression and flexibility, so it’s really important that banks keep pay competitive.

Of course, there are still some considerable technical and institutional challenges for banks. Innovation investment is important, and it needs to be balanced with a bank’s heritage environment, infrastructure and debt. When migrating to the cloud, banks will have to grapple with moving from a very traditional, physical data centre to a platform that will require a lot of investment in resources, time and cost. Any innovation will need to be balanced with cost control. This is only likely to get more challenging as economic conditions worsen and pressures on financial services increase.

Banks will also face the challenge of balancing changing customer demands and trends with cost pressures. This will likely mean a lot of difficult decision-making.

And, of course, banks also have the responsibility to consider their role in the path to net zero. As they innovate there are still key targets to adhere to. Banks will have to be mindful of how this could impact their services but should also view their commitments as a positive for their customers.

As consumer habits and trends continue to evolve, so too does the way that banks engage and deliver services. The arms race will not end, only hasten, as more and more technology becomes available and further challenges for the workforce emerge. To remain in the lead, banks must strive for the best products and services, but this simply can’t be done without putting talent front and centre.

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