As customers demand services focused on technologies of the 21st century, becoming a digital bank is a challenge all banks face. That’s not simple as banks have to change their core systems to become truly digital. They have to bring in new platforms with resilience, security and reliability. Traditional banks have to watch out against new and nimble companies looking to enter the banking market using new technologies such as mobile and to steal market share.
The following are a few ways in which banks can benefit from embracing digital banking solutions:
Adopt Digital Strategies fast to cope with the new age non-banking competitors
Banks have to anticipate that potential competitors can encroach from several directions, as changing customer behaviors and digital technologies redefine the competitive landscape. Wireless telecom companies, online payment systems and multifarious Internet-based businesses, along with a number of innovative startups, are taking on or planning to take on traditional banks by offering lower costs and greater convenience and speed.
As entry barriers continue to crumble, leading banks have to scan for market intelligence against emerging threats from non-traditional rivals. The banks have to look closely at their value chains to find potentially vulnerable links and to reinforce any weak areas so that they can retain their most valuable customers and high-profit businesses.
Banks have to act proactively to know their customers in a better way than any potential rival. They can play to their strengths and anticipate customer needs to customize offers. The banks can increase customer convenience through innovation and build stronger brands that gain the customers’ trust. Loyal customers are less likely to defect to the banks’ new-fangled digital competitors and get the banks new customers via referrals.
For example, Commonwealth Bank of Australia offers ‘augmented reality’ technology through a mobile app to help with buying a home. Similarly, BBVA provides information regarding actual selling prices of cars to its US customers.
Leverage advanced analytics and Big Data to understand how customers take decision in their digital journey
To achieve a competitive advantage that’s sustainable, in banking or any other business, understanding customers is the key. So, banks can harness advanced analytics to evaluate opportunities and gain insights that will enhance customer value, improve up-selling and increase cross-selling.
The drivers of business for predictive analytics include the following:
- Marketing (campaign management, segmentation of customers, generation of leads)
- Channel execution (sales performance, profitability)
- Management of risk (fraud, management of portfolio risk, capital and risk management, pricing after adjustment of risk)
- Management of customer experience (relationship pricing, virtual agent)
- Business strategy (capital and risk modeling, product strategy)
- Customer insights (customer lifetime value and profitability, credit analysis, social media analysis, sentiment analysis)
Several banks, such as Bank of England, already have advanced analytics units to develop and apply advanced analytical techniques. Such a unit enables Bank of England, for example to internally develop skills to collect and make sense of large volumes of unstructured data. The bank is able to use the unit to analyze data from sources such as social networks.
Go mobile first and accept mobile payments to provide a retail-like experience to banking customers
The demands of mobile banking consumers are increasing by the day. Digital consumers are no longer satisfied with mobile versions of banking applications offered online. They are looking for the entertainment value, time savings, context and simplicity of the mobile apps their favorite retailers have to offer.
Leading banks such as Bank of America and Barclays are among those which accept mobile payments.
Also, mobile initiatives such Softcard, CurrentC and Apple Pay are likely to make POS payments much more popular and banks that accept mobile payments are likely to benefit. So, digital apps for retail banking are a great idea.
Expedite delivery of banking services through digital
Digital banking doesn’t simply imply getting a new app built or getting consumers to use mobile banking or online banking. It is more than that and is a way to run an entire bank. To succeed at providing digital banking services, a bank has to deploy digital technology for the entire customer experience, besides product development, distribution, back- and front-office operations and marketing communications.
Banks can go for more of self service by customers and digitize more of their operations to expedite service delivery. They can also use technologies like beacons to let bank staff quickly recognize customers and rapidly predict and deliver the services customers require.
Focus on digital authentication and security and improve banking user experience
The threat from hackers and malware has been increasing consistently. To simplify the mobile and online login process, in response, and to verify users’ identities, banks can replace passwords with authentication options such as iris scans, fingerprints and voice biometrics. The key is to improve the user experience overall, while enhancing the security against hackers and other threats.
For example, Apple is offering TouchID and banks such as RBS and NatWest are to soon offer the technology to replace passwords. South Africa’s Standard Bank has already unveiled the technology for its mobile app’s users.
Incentivize customers in their digital banking journey through instant rewards
Consumers expect to get things easily and quickly in a mobile world that’s constantly connected and in which they have everything at the tips of their fingers. This challenges banking to search for new opportunities for engaging consumers. Geolocational incentives available in-store, merchant funded rewards and points signify the kind of approach that banks will have to go for to provide instant rewards to their customers.
For example, Garanti, which is among the largest banks in Turkey, provides a mobile app through which customers get advice and personalized offers based on their past spending and location. Similarly, Bank of America crunches transaction data to offer customers cash back at merchants they deal with frequently.
Banks have to continue to increase their investments in innovation
Banks have to continue to increase their investments in innovation as they face competition from financial industry entrants such as Facebook, Apple and Google. They also have to respond to the increasing customer demand for innovation.
As traditional banking through branches gets replaced to an extent by new digital players, nearly 35% of the market share of banks in North America could be there for the taking by 2020, according to Accenture. To meet the challenge, banks will have to adopt a new distribution approach, combining integrated digital services with a simpler and yet more wide-ranging branch offering.
For example, the RHB Banking Group of Malaysia has a network of mini-branches and kiosks located in rail stations, post offices and supermarkets, which cost 85%-90% less than traditional branches.
Look beyond banking for revenues in areas such as digital identity management
Identity management is one area where banks can actually gain on their new age rivals who have recently begun to offer financial services. It is one area where consumers trust banks, even as technology companies are struggling to address it. Digital identities that banks issue can be used for accessing public services online and for commercial purposes as well.
Use social media to engage with customers and increase transparency
There is massive commercial potential and there are considerable risks for banks because of the vast public forum that online media have created. Such media have not only opened a channel into the lives of consumers willing to share personal data, but also have become a sounding board for the opinions of consumers globally. Customers air their grievances as well as likes to huge audiences using social media at digital speed.
Banks can tap into the opinions and data their customers share willingly and use the insights gained in ways that are in line with the customers’ expectations regarding trust and privacy. Simultaneously, banks can open up to provide customers with access to information about their values, operating processes and products with an aim to increase transparency.
Leading players such as Bank of America, Wells Fargo and Citibank are now using social media to engage with customers.
Make small but well-targeted new investments in tools like work-flow systems and e-forms
Banks can make targeted investments that may be surprisingly small but generate significant gains in performance. Greater deployment of work-flow systems and e-forms and other such tools are among such investments. These often don’t require in-depth integration into legacy architectures, which may be quite complex.
For example, the underwriters and relationship managers at a bank have collaborated with the bank’s IT function to create a user-friendly online form for submission of loan applications. The form guides underwriters on the risk processes they need to follow and adapts automatically to input data.
Another bank has made the mortgage decision making process faster by modifying its existing application to follow standard rules related to rating data and minimum thresholds for down payments. This has reduced manual intervention and allowed faster scoring and routing of applications.
Emphasize more on business outcomes than digital activity such as downloads of your bank’s mobile app
Often, banks track activity metrics such as log-in rates and the number of app downloads to manage the progress of their digital transformation. However, such metrics are not adequate for measuring business value. Banks have to set aspirations clearly for value outcomes, considering lead conversion rates, servicing unit costs and productivity, and clearly link these to digital investments. Then only can they focus collectively on the right actions to capture fully the value available through digital.
Allow banking staff to participate in transforming the bank digitally
There are a number of ways in which banks can reshape their organization around digital. Some banks accord profit and loss responsibility to a head of digital they appoint. Others create a center of excellence model to generate offerings that the rest of the bank can adopt and deploy.
Any model can work, but the bank has to realign incentives to ensure that everyone involved collaborates for success. For example, if a bank creates a center of excellence but doesn’t have digital targets, a lot of technology may be built successfully but adoption may be limited. Similarly, no bottom line impact may be created by functionality that is technologically brilliant but not applicable to the business.
Banks have to develop a vision for the roles employees are required to play in the new world of digital. This is related to expectations for how they are to spend their time and how they work with the new technologies. There has to be clarity about the development of new technology competencies.
There is resistance to the change that digital transformation brings as the importance of some roles is diminished by it. On the other hand, there also is excitement due to the creation of new opportunities as digital shifts the focus towards higher value tasks for many workers. For instance, relationship managers can spend more of their time giving advice than capturing customer details.
Business leaders have to know how to address commercial challenges through the application of technology. They can’t just rely on new talent from industries that are digitally savvy and have to ensure that digital becomes a new competence across their banks.
Digital has the potential to change the traditional business model of banks, radically in some instances. The banks that are willing to embrace digital are likely to benefit in many ways. Digital banking implementations is going to change the banking sector in any case, whether or not banks are prepared for it or not. So, it is in their interest to do all that they can to adapt.
Can you think of any other ways in which banks can capitalize on the changes brought about by digital? Please share your thoughts, opinions or experiences in the comments section below.