For long, retail banks and financial institutions have used digital channels to reach out to new customers and to reduce costs. Digital platforms have allowed them to reach and engage customers on shopping portals, through integrated mobile apps and on social channels. On the other hand, processes like faster onboarding, electronic-Know Your Customer (e-KYC), and moving infrastructure to cloud have allowed for significant reduction in operating and fixed costs, making the acquisition of new customers cheaper and easier. Large investment banks and asset managers have also leveraged technology to create competitive advantage through faster trading systems and settlement times, straight through processing, reduced cost of transaction processing, and a significant reduction in operating risks through automation.
Spending on digital initiatives is usually based on one of the following strategies:
Wrap and Go: Create mobile wrappers for existing applications
Incremental Digital: Going digital in small parts, incremental upgrades
Digitally Native: Fully digital customer experience with both front- and back-ends digitised
As banks decide on the right strategy, and go through their own phases of digital transformation, let us talk about how to make these decisions.
Striking it right
While many businesses strive to “meet the customers’ stated needs”, success comes to the innovators among them – those who create a product or service preempting the customers’ needs. For instance, at a time when India was still grappling with demonetisation, PayTm offered a credible alternative to the banking system struggling with exhausted cash disbursal capacity.
Again, when traditional hoteliers were thinking about simplification of fixed cost structures, AirBnb disrupted the hospitality industry by allowing commoners to turn their homes into rentable properties. No wonder, innovations in technology have enabled organisations to create disruptions, giving them an edge over the competition, across industries. Therefore, digital business transformation in banking is not just about upgrading current systems to be faster or about saving costs – it’s more about reimagining possibilities for customers.
What is your digital transformation strategy doing for you?
New competitors, new technology, and new consumer expectations are impacting the banking industry faster and more powerfully than ever before. At one level, digital transformation provides organisations access to new customer bases. It also offers enhanced visibility into consumer behavior through advanced analytics of structured and unstructured data, enabling organisations to find or create the most suited products for their customers. The power of analytics and the availability of rich data sets about customer behavior have made it so much easier for marketers to reach and target new customers, and also to tailor products for every customer.
The lines between traditional retail banks and investment banks are blurring, as both continue to explore digital as a means to bring in new customers. Most of them are using technology to create more hybrid products, and offer more personalized products and services to their customers.
Effective digital strategy: The key to success
Traditionally, the banking industry has relied on personal relationships between bankers and their customers. Today, the typical customer journey is witnessing an evolution of sorts.
To begin with, today’s bank customers prefer to use their social networks to gain recommendations from their friends and peers on products or services – say, a loan or a mortgage. Second, they are carrying out a lot more research of their own than ever before, to zero in on a particular product. This has made it imperative for financial institutions to not just engage with their customers, but also to leverage the power of recommendation and network. They must be able to drive targeted engagement and offer personal recommendations based on what customers are talking about. What’s important is that, this initial engagement, onboarding and continued conversations need to happen seamlessly without the intervention of bank representatives de-personalizing the experience. Now whether the banks are able to leverage the power of this infinity loop, solely depends on the effectiveness of a digital strategy that focuses on high engagement.
The transition from Omni-channel to Mobile-first, and from Mobile-first to Device-first
IoT enabled devices are rapidly gaining popularity, and are creating tons of data around user preferences. Cutting-edge data analytics tools are turning that data into valuable information about customer buying patterns. Today, digital is no longer about a new or faster user interface, rather it is about re-imagining how to reach customers faster. Digital goes beyond serving customer needs – it serves what is being thought, or browsed.
Today, most of the major banks engage with their customers through omni-channel touchpoints across branch networks, mobile apps and websites. They are spending a substantial part of their technology budgets on creating and maintaining omni-channel presence, even as traffic continues to decline across channels.
In this age of personalized content, customers expect the bank to visit their home, or rather cellphone or wearable device. In underdeveloped countries, where a large part of the population is unbanked and financial inclusion is an economic necessity, a mobile-first strategy is a safe bet to reach the largest part of the population. I attribute this to the availability of affordable data packages and an easy access to smartphones by a sizeable chunk of the population.
Clearly, in a mobile-first world, banks need to reassess the distribution of investments across elements of an omni-channel strategy. Very soon, your refrigerator or the Amazon Echo device on your tabletop will evolve, as the smart devices place orders for beer or music. Echo will come integrated with Amazon bank in no time, and delivery will be fulfilled through Amazon web stores. So a forward integration combining multiple industries is in the making, and for any commerce to happen through wearable devices and/or IoT, banks have to quickly find ways of integrating into the device(s) ecosystem.
Personalize or Digitize?
Banks are exploring ways to engage a wider customer base with offerings typically meant for the super wealthy. Some of them are already building robo-advisor platforms for mass affluent customers. Is digitization taking away the personal touch provided by financial advisors? While that’s debatable, the truth is that robo-advisors are today closer to customers, available on-demand on their mobiles or wearable devices. Digitization is actually allowing personalization of each product, each service and each transaction with the customer, thereby allowing banks to be closer and even more engaged with their customers. It is also allowing financial advisors to focus on higher margin clients, hence making it imperative for banks to optimize their advisor alignments through better use of technology to service low-end customers.
Are Fintechs changing the game?
Fintech companies are perhaps the biggest disruptors across all three segments of the financial services space: payments, lending and personal finance. While they certainly have an advantage in terms of speed, agility and good user experience, banks are selling financial services which are based on a strong element of trust. In fact, the rapid ascent and equally rapid descent of payment wallets in India provides a vital insight into the fintech-bank-customer relationship. In the short run, customers may prefer the solutions of Fintech companies due to their speed, convenience and agility. But in the longer run, customers are likely to keep their accounts with a bank because trust plays a critical role in financial transactions. Eventually their paths may cross, but considering that this space is still evolving, partnerships between banks and fintech companies would prove to be a win-win situation for all in the medium to long term.
The future lies in innovation
Innovations in technology are soon going to transform legacy banking operations as we know them. The latest frauds involving Punjab National Bank and Nirav Modi of Gitanjali Jewels have sparked many conversations around the loopholes in the banking system, and how better audit of systems and better use of technology could have prevented some of the issues. Blockchain promises to bring a higher degree of transparency into financial transactions. But it is one of the many technological disruptions that can help banks, and all such investments in technology upgrades need budgetary investments. So the banks’ ability to create value for their customers will depend on their decision regarding where to invest first or invest more.
What is the right strategy?
Let’s face it: digital disruption is all-pervasive in the present-day banking industry. The emergence of new technologies, competition from new entrants in the game, ever-rising customer expectations – all these factors have made traditional banks more vulnerable than ever before. They better think in new, innovative ways, or risk becoming a mere back-office utility. Banks that are quick to embrace innovation and adopt new technologies have immense opportunities to improve the way they deliver financial services. The way ahead for them is pretty much clear: Make it faster, make it agile, make it transparent. But more importantly, rethink what you do and how you do it. The mantra to follow while reimagining the future: Keep your customers at the center of your digital transformation journey.
-By Poornima Vasdev, Vice President, Financial Services, Sapient Consulting
The thoughts and opinions shared here are of the author.
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