Globally, the banking sector was going through a churn even before the Covid-19 pandemic came and changed it forever.

Before the pandemic hit the shores of global retail banking, the industry was struggling with low interest rates, closing bank branches, rising risk of small and medium enterprise (SME) bankruptcies, consumer defaults, and eroding market share.

According to the recent World Retail Banking Report (WRBR), published by French IT major Capgemini along with Efma, a Paris-headquartered non-profit organisation, from 2010 to the close of 2020, nearly 320 neo and challenger banks across regions attracted more than 39 million customers. And, the global neo and challenger bank market is on track to hit $578 billion valuation by 2027, a nearly 47% compounded annual growth rate between 2018 and 2027.

The report further states that of the executives interviewed from traditional banks, 25% said competition from similar firms was cause for concern, while 66% cited new-age players as a competitive threat. These new-age players are luring millions of customers away from incumbents and forcing them to improve the customer experience in an over-speed mode.

Clearly, retail banks are facing a choice between aligning their offerings to customer expectations or running the risk of losing those customers altogether. The report highlights that as the economic disruption caused by Covid-19 continues, it has ignited a new era of value-based customer-centric banking, which the report refers to as ‘Banking 4.X’.

And, to succeed in Banking 4.X, WRBR argues that banks must embrace digital transformation and implement cloud-based ‘Banking-as-a-Service’ (BaaS) platform models, which utilise Application Programming Interfaces (APIs) to embed banking in everyday life, making it more accessible and inclusive for customers. And the time is ticking for traditional banks to make this change as a whopping 81% of consumers surveyed for WRBR said that easy access and flexible banking will motivate them to switch to a new-age financial provider, in lieu of their traditional bank.

Meanwhile, WRBR also argues that many traditional banks are seeking to retain and grow their customer base and have already embarked on their digitalisation and costs optimisation journey, as the Covid-19 pandemic forced them to substantially accelerate their efforts. In addition, retail banking customers, faced with pandemic-driven realities, now expect on-demand, fully digitalised experiences, hyper-personalised services, and around-the-clock assistance.

The worrying factor, however, is that of those surveyed, 46% of bank executives say they are unsure how to embrace open banking, orchestrate ecosystems, and become a truly data-driven organisation.

“By overcoming outdated legacy mindsets and adopting BaaS, financial institutions will move beyond their core banking products, create new offerings, and provide their customers with personalised experiences,” says Anirban Bose, chief executive officer of Capgemini’s financial services strategic business unit and also the group executive board member of the IT major. “Banks must focus on how they can add value to their customers to retain and engage them. Through platformification and by leveraging data, banks can better cater to the needs of the modern customer as well as create new revenue streams,” he adds.

Platformification has the potential to be the defining factor for the new era for the retail banking industry, as incumbent banks can unlock new value in open ecosystems via BaaS platforms, which offer access to new data sources and monetisation opportunities. As per WRBR, banks need to quickly turn to experience-driven, platform-based approaches, which embed banking and other services within consumer lifestyles. On a positive note, 66% of banks claim to already use a BaaS platform, while 25% are in the process of developing one.

By virtue of the inherent nature of banking business, WRBR points out that incumbents have several strengths in their business, such as reporting, knowledge of the customer, licensing, transaction processing, and connectivity to global schemes among others. These can be easily monetised, and incumbents can also tap into an array of external providers to improve their offering and best cater to consumer demand for a more integrated and personalised experience.

The good news is that traditional banks have recognised that accessing the capabilities of their wider ecosystem is of significant importance to their new journey, and 80% of banking executives in the WRBR survey did indeed agree that BaaS will help them cultivate open ecosystem synergies to innovate and create new banking products and services. This would, thus, allow banks to become more inclusive in on-boarding the unbanked and under-banked segments of the population through on-demand, digital, and easier-to-use channels.

“Banking and non-banking firms have the opportunity to come together and empower better customer service,” says John Berry, CEO of Efma. Berry is of the view that these strategic partnerships enable new, creative offerings that reflect customers’ lifestyle, needs, wants, and even personalities. “Banks should focus on improving support, reducing the costs of banking products and services, and offering sustainability initiatives. The future of banking relies on a strong digital foundation and a flexible attitude toward embracing innovation,” he adds.

It is beyond doubt that a data-driven approach will prioritise hyper-personalisation and also help in securing long-term growth. As banking is entering an era where financial services are embedded into customers’ daily lives, collaboration will be the route to success. BaaS offers unprecedented opportunities to gather data through ecosystems, with more than 86% of consumers surveyed for WRBR affirm that they would share their data to gain a better, more personalised experience.

WRBR points out that incumbents need to build digital capabilities to harvest these data ecosystems to create, retain, and increase value in the ‘Banking 4.X’ era. The data-led approach will allow leading banks to keep customers at the heart of their transformation journey by tracking behaviors and sentiment through smart data analytics.

But banks need to act quickly. Because, as the WRBR report found out, 61% of firms lack a dedicated customer experience (CX) management team to define customer roadmaps. Banks can drastically improve their customer experience by deploying a digital CX layer and reimagining branches as experience centers, to offer consistent and secure omnichannel experience across all touchpoints.

The Covid-19 pandemic realities have revealed that banks must align their priorities and mentalities with customer lifecycle needs to create long-term business value. And that calls for transforming the banking core, to enable insightful management of customer expectations.

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.