Current application portfolios are preventing banks from making the transformation they need ensure customer retention, says analyst Gartner, which urged them to focus more on "APIs and apps" to solve the problem.

“The banking industry has lost its way, both in the services it provides to customers and its future profitability to stockholders,” said Gartner analyst Kristin Moyer. “Banks need to transform both their delivery models and architectures to remain profitable. Applications are preventing transformation in the banking industry because they are rigid and reactive.”

Gartner said banks need to stop relying on "reactive product delivery" and start providing a "delivery model transformation that uses public and private web application programming interfaces (APIs) and apps".

This new approach, it said, will enable banks to deliver "needs-based services" that are relevant to the context, location and technology customers are using.

This approach will also allow banks to respond quickly to new opportunities, and will allow them to work with third-party developers to build the banking solutions they need, said the analyst.

For example, said Gartner, a mortgage refinance app could indicate (without customer initiation) whether it makes sense to refinance a mortgage, given current interest rates. With a few more clicks the customer could apply and then view the process steps required for the bank to complete the transaction.

“This would be an entirely new way of banking, and if banks ignore this trend they will quickly find themselves relegated to low-margin, low-growth market segments and products that will no longer be profitable,” said Moyer.

Gartner said barriers to banking on APIs and apps like security, scalability, performance, complexity, regulatory compliance and integration could be overcome through "careful IT governance, 'extreme reuse', service orientated architecture (SOA) governance, API management and other best practices".

Gartner analysts will be going into more detail about what banks should be doing to keep their customers at the company's Symposium/ITxpo in Barcelona next month.