The coronavirus pandemic has seen traditional and challenger banks rapidly adopt new technologies to compete.

New research from data solutions company SAS explored the impact the Covid-19 pandemic had on how the banking sector uses technology.

According to its study, 89% of the challenger and traditional banks surveyed said that 12 months of the pandemic had accelerated their digital adoption by five years.

Traditional banks have found this to be particularly true, with coronavirus accelerating their transformation by 93%.

Covid-19 has helped drive people online, with more using the internet for shopping, business and entertainment. Of the respondents, 97% said that more are using online banking and services since the start of the pandemic, with 61% strongly agreeing.

The pandemic forced many organisations to shift their operations online. This required a major digital transformation, delivered in a matter of weeks.

As such, there was a 200% rise in the number of new mobile banking apps registered in April 2020 among the scramble to introduce digital channels to their customers.

The digital transformation has, to a degree, helped close the gap between traditional banks and challenger banks. Traditionally, SAS notes, challenger banks have been more open to adopting new technology and operating digitally.

In its research, 66% said that traditional banks now see the potential held by innovation, with respondents from challenger banks agreeing more strongly.

In addition, 84% of IT decision-making respondents said that traditional banks would not revert to their old ways as the pandemic subsides.

The report warned that traditional banks may, however, be implementing a process of digitisation over digitalisation – where manual processes are simply given an online component rather than seeing a genuine digital transformation.

As such, there is still ground for traditional banks to cover, such as leveraging the power of automation, creating new financial products designed for a digital environment, or fully streamlining existing projects.

“For traditional banks, the pandemic really highlighted how truncated their online banking experience can be,” said Head of Banking at SAS UK & Ireland Johnny Steele

“With modern technology, these processes have the potential to be entirely digitalised. Customers should be able to log into their online banking, complete the required information, upload the necessary documentation, with AI helping guide them through the process with clear next steps and advice. That is the precedent challenger banks are setting for banking. Traditional banks must meet that standard.”

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65% of challenger banks see high value in using digital technology to personalise services, compared to 53% of traditional banks. Also, 65% of challenger banks consider being data driven as a competitive advantage, compared to just a 33% of traditional banks.

For traditional banks, they were more likely to say that the use of machine learning and artificial intelligence differentiates the bank for competitors, 53% against 45% of challengers. In addition, 80% of traditional banks said that their global reach differentiated themselves, compared to just 34% of challengers.

However, 92% of respondents disagreed that challenger banks will need to find a new platform to compete from. Instead, the report notes, challenger banks will continue to use technology to automate large parts of the customer journey and reduce costs.

As such, with the technological gap between challenger and traditional banks closing, the big differentiator is how they use the digital tools.

The challenger banks that took part in the research said that they aim to reach a 35% cost-to-income ratio by 2023. Traditional banks, meanwhile, said they are targeting a ratio of 47%.

As such, challenger banks will stay competitive by maintaining a low cost to serve. Traditional banks, meanwhile, have higher running costs, making it more difficult for them to shorten their ratio.

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