Digital disruption is real, and banks are slowly but surely re-inventing themselves. However, for banks, the challenge comes from the speed at which change is occurring in the banking sector. Digital transactions are on the rise, not only in terms of numbers but also value, and there is a great opportunity for banks to monetize on transactional data to derive valuable insights about their customers and ultimately cross-sell and upsell. It also provides banks with the opportunity to link their retail banking customers with their SME banking customers to create a win-win situation for all segments, and add new revenue streams for the bank in the process.
Banks’ customers across all demographics are much more digitally-savvy nowadays, compared to only a decade ago; of every 10 interactions they have with banks, the majority are carried out using digital channels such as web, mobile or tablet. The term digital can mean different things for different banks, based on their journey and maturity- some banks tend to digitize their existing products, however the core processes and the foundation are very much how a legacy bank will operate. A truly digital bank will provide a seamless customer experience across all channels, e.g. customers can start their interaction using a mobile device, and carry out subsequent steps using their desktop or tablet, or by visiting a branch. The continuity of that interaction is seamless for the customer. A truly digital bank will never exist in its entirety, as for the bank it’s more about the journey than the destination.
In a world where physical connections are diminishing, it is critical for banks to create a ‘stickiness’ in the relationship with its customers. The challenge remains for banks, as the relationships are now shifting to social media giants like Google, Apple, Amazon and others. Many of them have now acquired regulatory licenses, e-wallets and payment services and are in direct competition with banks and financial institutions. An average user on Facebook and Google spends 10x more time on these sites due to enhanced user interfaces, more relevant, contextual and situational aggregated content, individualized for users. The key here is to progress from recommendations given to customers from segmentation and personalization to a more individualistic approach. The vast majority of banks are far from achieving the individualistic recommendation approach. Banks need to go to market more quickly with their products and services, and establish a connection with their customers as the relationship is diminishing. The are several examples: Netflix, disrupting Blockbuster, Amazon replacing more than 50% of independent bookstores in the world, Airbnb becoming the largest hotelier without owning a single property, and Uber the largest cab company reducing yellow cabs’ revenue and trips significantly.
The GotoMarket with tangible digital products and solutions which could differentiate a bank in the marketplace is slow. There are several challenges in front of bank, the need for bank is to bet on innovation and move quickly with decisions rather than focusing on proving the technology.
Challenge 1: Traditional revenue streams are drying up and challenged by third party service providers
Traditional revenue streams are drying up and there is a greater urgency to cross-sell, up-sell to create New Revenue Streams with Digital products. Regulations such as the Payment Services Directive (PSD2) could also be replicated outside of the EU, this will increase competition and participation in the payments industry also from non-banks, to provide a level playing field.
Challenge 2: Banks are unable to understand customer needs accurately
With the increase in recommendation and personalization services offered by third-party financial players, banks’ customers now expect individualized, contextual and situation-based offers. They want the bank to understand and predict their needs beyond the financial product and provide solutions to help solve their day-to-day problems. (e.g. lifestyle-based recommendations). Solutions like PFM ( Personal Financial Management), BFM ( Business Financial Management) and Recommendation engines capture, track, analyze and provide intelligent and actionable insights to customers on their finances and the next-best action.
Challenge 3: Unable to provide a superior and engaged customer experience on all channels
Banks are no longer competing with other banks in terms of customer experience, but rather with social media and third-party FS companies providing traditional banking services, payments etc. Bank customers are now comparing their digital experience with likes of Facebook, Apple and Amazon across all channels, Laptop, desktop, mobile devices, etc. A superior customer experience is a must to attract, grow and retain existing customers, to increase wallet share and avoid churn. The customer relationship is shifting to 3rd-party FS and social media, whist the bank is becoming a utility provider in the background, losing its ability to engage with the customer for any potential cross-sell and upsell opportunities.
Challenge 4: Finding the right technology partner
Finding the right solution partner, to resolve these challenges and manage digital disruption is complex. Identifying gaps in their digital strategy and aligning with the right partner requires being transparent with partners, establishing where value can be added, and quickly moving towards decision and implementation.
ABOUT THE AUTHOR
Yogesh Desai is business manager with Strands based out of Asia region, with 18 years’ experience in technology and banking and financial services, he has assisted banks in providing great insights in their business and identifying opportunities for banks to stay ahead of the competition and be relevant in the current disruptive environment.