Digitization, RPA, Analytics, AI – these are some of the contemporary buzz words across industries and Banking is no exception. However, digitization of banking services such as onboarding through online and mobile banking, inclusion of RPA, AI techniques in areas like customer service have not sprung up recently, nor these are an outcome of a major event like COVID-19 that is upsetting the banking world over.
The year of 2020 no doubt will go down in the history as one of the most impactful years on the banking industry – a year marred with uncertainty, a year requiring rapid adoptions, a year marked with heightened stress on most areas of banking, a year perhaps not many ever imagined would come. The silver lining though is that, industry as a whole is able to react swiftly enough to ensure business continuity, was able to come up with short term alternatives such as moving significant part of branch operations to back offices, enabling remote working – be it for a branch executive, a call center agent or for an IT operations person, was able to quickly deploy tactical IT solutions through online and mobile channels, divert more customer queries to assisted channels, etc.
This no doubt is a great testimony to the adaptability of modern day organizations. However, Digitization in the longer run is not just about amplifying digital interactions. Digital goals should take into consideration the following four tenets at a minimum: 1. Virtual operational shift 2. Emerging customer preferences 3. Digital eco-system and 4. Co-existence of physical and digital worlds.
Virtual Operational Shift:
Over the years, Digitization has helped banks automate routine tasks, cut down costs and improve efficiencies. But more importantly, it helped banks in better customer acquisition, better evaluation of customer needs and better customer service. From a customer’s point of view virtual banking offers ease of use, provides up to the minute information, and is increasingly letting them control their finances and financial footprint better.
Fee income and government guarantees would have attracted some financial institutions to approach the SME segment tactically in the last few months. Some financial institutions were quick to launch improvised, stop-gap solutions like online portals to process credit applications and loan modification requests. Some financial institutions and fintechs forayed in this segment as mere conduits to the approval process by depending on other authorized lenders in the background. IT solution providers were quick to come out with tactical ‘patchable’ solutions such as portals and tools for accepting and processing PPP loan applications. Sure, this is a tactical approach to jump start a new business line and to demonstrate nimbleness. However, in the long run, virtual operational shift should be based on strategic business and technology objectives.
Banks and credit unions should invest in enterprise applications which are configurable and composable to cater to the progressive virtual operational shift based on long term business objectives. Else, the dependency on tactical solutions will only make it more complex to sustain in the long run.
Emerging Customer Preferences:
Technology is enabling more and more banking operations to be performed from the comforts of home. This is not merely an outcome of technological innovations, but a reflection of changing customer preferences. Banking population today does not merely compare products, associated fees or other benefits. They evaluate the overall experience of banking while deciding to go with one bank vs the other.
Perhaps this is better understood by new age fintech players be it in the digital lending arena, the payment processing arena or even complex areas like corporate banking, traditionally considered to be highly dependent on people, processes and paperwork.
Customer preferences in the coming days are going to pitch banking experiences against the experiences and ease of use offered in other industries such as digital entertainment, online shopping, travel, etc. Banks and credit unions should pay close attention to these emerging customer preferences and calibrate their digital banking roadmaps from time to time to be successful in the long run.
Impact of Growing Digital Ecosystems:
No financial institution how big or nimble it might be, can manage the rapid thrust on virtual operational shift and emerging customer preferences without depending on ecosystem players. With various regulatory and other initiatives by governments and industry bodies around the world aiming to make banking more open and inclusive, financial institutions no longer enjoy the exclusivity of customer’s personal and financial data. Innovative ecosystem players are fast emerging to take advantage of this game changing opening up of banking and vying to provide innovative products, better services and superior experiences.
Banks and credit unions should consider the continued emergence of ecosystem players while devising their digital strategies by focusing on core areas and allowing eco system players to complement in the non-core areas. Vital to this would be – focusing on creating open APIs, relying on core banking platforms and other processing engines which imbibe this ‘openness’ and provide for frictionless integrations, harnessing the power of data exposed through the APIs and putting together a comprehensive ‘big data’ strategy thus providing a unified gateway to meet all customer needs.
Co-Existence of Physical and Digital Worlds:
There is absolutely no doubt that digitization is a driving force behind banking transformations, but do banks and credit unions need to aim to be 100% digital? The answer may not be the same for all organizations. Digital-only vs digital-first should be a conscious decision. Financial institutions that have a significant physical footprint do seem to have an upper hand in catering to certain customer segments and providing certain banking services which cannot be completely fulfilled by digital-only banks. While the current pandemic might have left an impression of digital superiority, that may not be a panacea for all banking challenges in the long run. It’s imperative for financial institutions to clearly identify areas that can give them strategic advantage and improve physical operations in those areas while constantly working towards moving other services to the digital world.
In summary, digitization has a broader connotation for customers, bank employees, ecosystem players, and regulators. Tactical solutions might offer intermediate remedies but organizations should focus on long-term objectives by carefully considering various aspects such as changing customer preferences, technological innovations, and ecosystem dynamics. Digitization offers innumerable benefits to every stakeholder in the banking ecosystem, but there is not a ‘one size fits all’ solution. It is in this context that digital strategies should be formulated and IT Investments, particularly when relied upon through third party providers, should be evaluated.
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