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Digital CX takes center stage as mid-sized banks scramble to optimize operations

Babu Mauze

Without doubt, we’ve all experienced the “new normal” of life in the COVID-19 era. For banks, it has highlighted the need to accelerate their focus on improving customer experience (CX).  Not that they have neglected CX as they have faced increased competition from digitally native tech startups and challenger banks for years now – but now it is table stakes.

A Capgemini survey conducted in April measured the impact of the novel coronavirus on consumer behavior. It tallied a five percentage point increase in consumer use of mobile apps and internet banking that is likely to maintain momentum throughout 2020. During mandatory lockdowns, digital became the only mode of engagement, which compelled customers to shift interaction channels. Workplace dynamics changed, too, as employees were forced to work remotely.

However, most banks were unprepared to accommodate sudden digital-only communication, and an avalanche of customer calls overwhelmed service centers operating with reduced staff.

Tier-I banks that had embraced digital transformation trends early on kept operations on track. But small- and mid-sized firms with less digital expertise had fewer options. A 2019 review of mobile banking capabilities of US banks found large banks (those with assets of more than a trillion USD) averaged 13 features out of 15, compared with eight mobile features from tier-II banks, and five from tier-III banks. Digital preparedness affects customer engagement across all sized firms and sectors – and banking is no exception.

Digitization is critical to employee engagement and customer service

In addition to creating a seamless experience for customers, pandemic restrictions made work-from-home capability a necessity for employees. All this was happening while banks were grappling with cost pressure as revenues, including net interest margin, expectedly shrink.

For new-age, fully digital, and branchless firms – such as N26, Revolut, or Monzo – the crisis may be a white-swan showcase of their agility advantages. Capgemini’s survey revealed that around 30% of bank customers say they would switch to a new-age firm if their primary financial provider does not deliver the CX they expect.

Integrated, end-to-end digital experience is becoming vital to customer retention and delight. As outlined in the World FinTech Report 2020, a front end that engages customers is dependent on robust and enabling back-end operations. Firms that ignore middle- and back-office innovation often hinder overall CX and make workforce optimization difficult. Manual, disconnected, paper-based, and siloed tasks weigh down procedures, slow new-product commercialization, and reduce customer response time.

Flexible, cost-efficient operations top the priority list for small- and mid-sized banks

Most traditional banks operate on several 1990s-era legacy systems with multiple overlapping business applications, complicated and expensive infrastructure spread across servers, code-based architecture with long testing cycles, and limited ability to scale. Moreover, mid-sized firms (unlike their tier-I counterparts) lack funding and face intense pressure to move from fixed capital expenditures to a lean, variable cost model.

A cloud-first approach can help banks become lean and agile and can simplify technology adoption needed to modernize legacy systems such as core banking. A 2019 Financial Services survey found that 40% of banks have migrated or are migrating mission-critical applications to the public cloud.

In the US, the first banks to operate entirely on a public cloud were Commerce National Bank & Trust and Commencement Bank. The move enabled the community institutions to match the speed-to-market and flexibility of challenger banks.

Core banking modernization is integral to transformation

Legacy infrastructure restricts banks from achieving transformation goals and business priorities. Not surprisingly, 95% of mid-size banks say they are not satisfied with their core banking capabilities. Research conducted by Everest and Capgemini found that nearly 38% of mid-sized banks blame legacy systems for customers’ poor digital experience; 27% said legacy core systems lack flexibility and agility, and 21% emphasized integration issues.

Now more than ever, mid-sized banks are seeking to address these challenges, with 69% of firms at varying stages of transformation, and 27% yet to begin the process.

However, core banking transformation is not without its challenges, and nearly 54% of mid-sized banks say they prefer a journey-led progressive approach that incrementally swaps out monolithic architecture for microservices-based architecture.

A modern core can help mid-sized banks transition to a new open ecosystem role with opportunities to enable superior end-to-end CX and to offer profitable products and services. An updated core banking system can support efforts to:

The path to digital and lean operations begins with a modern core banking system and transformational offerings, such as those offered by Capgemini. For details email us at


Babu Mauze