UK banks struggle to utilise data for timely product launches

UK banks are reportedly struggling to understand their customers and launch relevant products, according to a new research report by core banking platform SaaScada.

The study, which surveyed 150 heads of innovation at UK retail and business banks, highlights significant challenges within the sector, ranging from pressure to innovate to difficulties in harnessing customer data effectively.

The report, titled "Boosting Net Interest Margins: Why Banks Must Not Wait To Innovate," reveals that 70% of banks have seen the total value of their balance sheet grow amidst high interest rates over the past 12 months. However, 77% of these banks also indicate an increased pressure to innovate during the same period.

"Right now, UK banks are under immense pressure to balance the opposing levers of growth and profitability," stated Nelson Wootton, CEO and Co-Founder of SaaScada. "To increase their net interest margins, banks should tap into the treasure trove of customer data they have access to. This data reveals spending habits and challenges, but is currently slipping through banks' fingers. By getting a handle on their data, banks can better understand customer needs, and launch lucrative and innovative products to address them. If not, they will find themselves left out in the cold."

The report notes that profitability growth necessitates increasing the share of wallet, which refers to the percentage of a customer's total financial services they utilise from a single bank. According to the study, 76% of banking innovation heads emphasise the critical importance of increasing the number of products or services each customer buys. Nonetheless, only 23% of banks' customers use more than one of their products.

Understanding customer needs and effectively leveraging this understanding to develop new products remains a crucial concern. A significant 90% of survey respondents acknowledged the need to better understand their customers to stay competitive. Despite this, banks frequently fall short of following through on their data insights. For instance, 81% of the heads of innovation agree that customers are prone to switch to banks that align with their social values, yet just 22% believe in considering the launch of products focused on sustainable and ethical investments. Further, less than half (41%) are looking to create products aimed at supporting financially vulnerable customers.

The pace at which new products are launched emerges as another critical issue. The report warns that banks, unable to rapidly introduce new products, will likely see their net interest margins shrink. Of those surveyed, 75% affirm the necessity for banks to launch products within months rather than years. Despite this urgency, it takes an average of 8.4 months to launch a new product. Moreover, nearly half (45%) of the innovation heads noted that new products tend to be outdated by the time they are launched.

Delays in product launches further aggravate these challenges. Fifty-one percent of respondents experienced delays averaging over three months in the last year, collectively leading to an estimated £51.1 million in missed revenue. Among those affected, 66% reported wasted time, money, and resources, while another 66% had to explain the delays to their board or leadership. Additionally, 64% had to defer or cancel other projects, and 51% faced increased regulatory scrutiny.

Wootton elaborated on this aspect, stating, "Banks must focus on improving their agility to avoid lengthy, costly product delays. To meet this goal, banks need to assess their core banking systems, and gauge whether these are agile enough to develop new products and services at pace. Truly cloud-native core banking platforms are the only way banks can bake insights and flexibility into their product offerings. Without this capability, banks will fall behind the competition and fail to keep up with soaring customer expectations."

The report emphasises the crucial role of innovation and data utilisation in helping banks remain competitive and profitable in a rapidly evolving financial landscape.