Banking hasn’t been the same after COVID-19. People are now opting more for digital and personalised solutions, despite lockdowns becoming a thing of the past. Customers in the 21st century now prefer mobile banking rather than visiting the branch. Technology, which was brought by the fintech in the financial sector, is now being embraced by the legacy banks as well. The customer experience (CX) has now become the established and key differentiator and the relationship between banks and customers is going through a drastic change.
A study from KPMG UK suggests that at least one-fifth (20%) of bank customers have not visited the branches since the lockdown removal. Banks are now adapting services accordingly, with research revealing that more than 300 bank branches across the United Kingdom are facing closure prospects by 2022 end and the number will be bigger in coming years.
All these factors suggest that the banking sector is going through a major transformation, with technology being the key guiding factor. The term called ‘Customer Experience’ (CX) has become important more than ever.
Understanding the phenomenon
“No two customers are alike, and each consumer expects you to know them, understand them and reward them with a level of contextual experiences that extend from product creation to service delivery… across the entire customer journey. Effectively executed, this level of personalization will support proactive engagement at the time and in the channel where the customer benefits the most,” remarked Jim Marous, Co-Publisher of The Financial Brand, CEO of the Digital Banking Report, and host of the Banking Transformed podcast in a recent article.
“Organizations in every industry are making major investments to improve customer experiences. An estimated USD 6.8 trillion of direct investments in the digital experience is expected through the next two years, according to IDC, with 75% of organizations pursuing comprehensive digital transformation. Differentiating an organization requires customized solutions that can deliver contextual experiences,” he wrote further.
“Banks need to recognize how to keep customers engaged through their banking experience. Personalized tools to proactively build consumer portfolios are vital for keeping the customer feeling seen and understood,” Jim Marous stated.
Banks need Decision Intelligence Platforms more than ever
A Decision Intelligence Platform allows banks to understand customers’ needs based on the latters’ lifecycle, while deploying AI-based recommendations for beneficial engagements between customers and financial institutions. With a centralized and updated customer profile, banks can interact with customers as a “financial concierge” for sales, service and security solution optimization.
The platform also allows financial institutions to deploy insights internally and externally at a fast speed and large scale. As per the International Data Corporation (IDC), by 2025, 75% of businesses will leverage digital decision-making platforms to become more agile and adaptive.
“The democratization of data within an organization improves collaboration between business units and allows all employees to support the customer experience. Equally important, insights can be delivered securely,” commented Jim Marous in his article.
“In making a decision intelligence platform more valuable, first-party insights can be enhanced with third-party data for highly contextual recommendations delivered across both internal and external communication channels. Imagine doing a test drive as part of buying a new car and receiving a personalized financing offer based on an instant credit score before leaving the auto dealership. Or a financial institution could provide reviews and ratings for vehicles like the one just test driven. This level of real-time engagement can increase the lifetime value of the customer by instilling trust in the use of data on the customer’s behalf,” he remarked further.
A Decision Intelligence Platform also allows for the instant simulation of business outcomes based on “digital twins” of the existing customer database, thus using AI to drive alternative scenarios and business impacts. It enables safe testing of financial products, pricing and processes across the organization, without affecting daily business.
Knowing Decision Intelligence Platforms in detail
These platforms allow financial institutions to optimize and monetize their people, data and analytics for more intelligent decisions, thus remaining future-ready. The process involves leveraging data to create instant insights and enables smart actions to achieve the desired outcomes.
“Digital decisioning provides the end-to-end connectivity that unifies the four stages (data>insights>actions>outcomes) with a single platform to deliver enterprise-wide visibility, scalability, and decisioning transparency,” states eBook of software and data analytics company FICO.
In short, the platform is all about creating a 360-degree uniform view of the customers, allowing banks/credit unions to support a seamless experience at every touchpoint of the customer journey. It works with the combination of first-party data, shared decision assets like attributes, models and segmentation, along with third-party data for an accurate picture of the customer’s financial health and his/her priorities. Decision intelligence platforms streamline and simplify data aggregation and management, at a fast speed and big scale.
Successful insights creation needs an approach which will align with existing banking systems, processes, people and even culture. A customer-centric financial product takes care of customer patterns, models, events and then recommends solutions which show empathy towards the concerned individual. While banks know in great detail about their customers, the real challenge remains to deploy financial recommendations, which show empathy and create a positive engagement. Basically, the whole process is about the perfect combination of automated and human interactions, giving customers a positive experience.
The final outcomes of the bank-to-customer communication create new data and insights, thus beginning a new high-speed learning loop.
“This flywheel effect continually adapts and calibrates decisions in real-time, improving innovation, efficiency, internal collaboration and financial results. Leveraging data, advanced analytics, automated communication and a continuous learning loop, banking organizations can empower both internal business users and customers. By deploying smarter, faster, more contextual engagement, banks and credit unions will increase trust and generate higher lifetime value by decreasing relationship attrition,” writes Jim Marous in his article.
Legacy banks and independent digital banking ‘Twins’
“Digital banking transformation has become an imperative for banks and credit unions. Unfortunately, the process of transforming a traditional bank into a digitally-focused institution can be complex and challenging, requiring significant changes to business processes, technology systems and organizational culture,” writes Jim Marous in his article.
“In research done by the Digital Banking Report, and from discussions with banking leaders on the Banking Transformed podcast, one of the biggest challenges to digital banking transformation is changing a traditional bank’s organizational culture. In becoming more digitally focused, banks and credit unions must shift to a more collaborative and agile culture where meeting customer needs at speed and scale is the priority. This requires collaboration and support from leaders at all levels of the organization, as well as a willingness to embrace change and take risks,” the co-publisher of The Financial Brand commented.
The fact remains that the existing technology of legacy banks lacks the flexibility required for digital transformation. Replacing/modernizing these systems can be a costly and time-consuming affair. Now, these banks are planning to build entirely new, digital organizational units. However, Bain & Co. research has found that some of these digital banking units have flopped and some have succeeded, thus providing a mixed picture. The research also saw the financial institutions interviewed by it justifying the formation of these separate digital banks as an “opportunity to build a new, high-growth business that leverages the parent’s capabilities — a form of portfolio diversification.”
These banks’ focus on the endeavour and long-term investment took centre stage because of a significant opportunity/threat that would disrupt their businesses, stated the survey.
The research said that building a digital banking unit makes sense “when an incumbent bank faces disruption by fintech competitors, wishes to serve a segment where a digital banking model can be used for market entry and growth, sees their existing core growth stalled or reversing, has gained commitment from executive management, builds or already has the capital to invest to support the digital bank, believes in the digital banking business model as a way to future-proof the existing organization.”
However, just because of a few failed experiments, it doesn’t mean that the idea of building a separate digital bank within a parent legacy organization is a bad idea.
A separate digital bank can help a traditional financial institution to reach new customer segments, especially the lot consisting of younger, tech-savvy individuals who prefer to bank online, unique business categories like sole proprietors/the medical community; or even segments with lower customer lifetime value. By offering exclusive digital products and services to these sections, the bank can attract newer customer landscapes, which they wouldn’t have been able to cover with their traditional arms.
The legacy organization consists of talent pools, decades of experience, significant sources of existing technology and investment funding, all of which fintech firms lack. Most importantly, the digital banking unit can leverage the trust and brand equity, built by its parent business over multiple years. All of these can give them an advantage over the fintech rivals.
A separate digital bank brings the cost efficiency factor as well, as a traditional institution can operate more efficiently by leveraging digital channels and automating processes, thus reducing required headcount, lowering operating expenses and increasing profitability.
Digital banks offer a more streamlined user experience compared to their traditional counterparts. A legacy financial institution can offer customers the convenience and speed of digital banking with lower costs and increased engagement opportunities. In fact, the Bain & Co. research found that the customer advocacy of the digital unit exceeded that of the parent bank.
Having a separate digital banking unit within a legacy financial organization can enable the bank/credit union to become a highly competitive digital player. Much of the profit potential in 21st-century banking resides within the digital sector. These digital banks are more adaptable to marketplace changes compared to their traditional counterparts. Through its separate digital bank, a traditional financial organization can experiment with new digital products, services and delivery methods, apart from being customer friendly.
However, challenges remain
“Far too many financial institutions find excuses not to move forward as opposed to taking steps towards creating an improved learning loop and differentiated decision intelligence platform. Define what area of your business requires the most attention and determine what is needed from a data and analytics perspective to achieve your goal,” Jim Marous added.
Banks/credit unions are now focussing on generating quick profits in months, rather than waiting for years.
“Projects that have good alignment to your strategic vision and are fast time to value are often great candidates to start with,” states FICO.
In short, time is the new capital here. However, this new approach is facing potential obstacles like legacy mindset around new technology/processes, compliance requirements, accessing ‘clean’ data, lack of support for AI/automation, and lack of internal skills and talent.
To address these challenges, the banks need to engage third-party solution providers, who, in turn, can use case studies across the industries to provide the best-result-oriented blueprint for these legacy banks. Collaboration with these external solution providers is the key for traditional financial institutions to excel on the digital path.
Also Bain and CO’s research found that “the economics of [a separate digital bank] model remain a work in progress for most banks, with the particular challenges of moving from a rapid growth phase to delivering sustainable returns, and from small to large scale.”
Talking about independent digital banking ‘Twins’, a major challenge comes in form of divisiveness within the financial organization, along with the chances for internal competition for leadership attention, investment and talent.
A digital banking unit has to be agile and innovative, thus prioritizing speed, experimentation and result-oriented collaboration. The question of whether a legacy organization can form such a maverick mindset becomes crucial as well. These banks depend on legacy technology which is unsuitable for digital banking. Heavy investments in breakthrough platforms are another challenge here. These digital banks also need corporate leaders and staffers with different skill sets than their traditional counterparts. These professionals need to be comfortable with data analytics, programming, and user experience design. While these digital talents are high in demand, traditional banks struggle to attract and retain such digital talents.
Seamless integration is another potential roadblock here, since a digital banking unit needs to be integrated with the traditional counterpart’s operations to ensure a seamless customer experience. With a completely different set of technologies and processes becoming part of a legacy organization’s operational structure, seamless integration can become a difficult job. While the digital banking unit must be aligned with the existing legacy financial institution’s brand values, it also has to offer a new, refreshing experience to the customers.
“Whether customers choose to bank in a branch or digitally, banks must bring personalization, empathy and human touch to each customer at every point of contact. In banking, new customer onboarding has traditionally involved completing and signing stacks of paper, straining customers’ patience while adding administrative load and process bottlenecks to onboarding teams,” remarked Temenos Banking Cloud.
“As more customers shift to digital channels, providing a practical, seamless, and fully digital experience is fast becoming every bank’s crucial weapon for acquiring and retaining new customers. With digital giants like Google, Amazon and Netflix, customers have become used to having their needs instantly met, especially amongst new generations who expect the ‘right-now’ user experience,” it added further.
“Transform onboarding into a relationship-building process by giving customers and employees easy access to the information and tools they need. Decrease customers’ perceived effort by pre-filling the form information from integrated external data sources such as credit bureaus, Open Banking account information, or company registers with resumable Omni channel journeys and simple questions using a conversational tone of voice. Allow them to easily connect with advisors in the branch or digitally through chat, voice, and video, empowered with customer insights, can proactively provide tailored advice to rectify any onboarding issues such as information mismatch or a missing document,” the report said.
Talking about 21st-century banking, legacy organizations need to respond to changes and opportunities in their sector faster than ever. Not only do they need to rethink their business models, understand the breakthrough technologies and invest in them, but most importantly, they need to ensure that these changes are getting integrated within their legacy frameworks seamlessly.
Adjusting to such a maverick and agile approach can be challenging, especially when a bank has had its successes with more traditional approaches. And most importantly, the agile approach can only work when the financial institution is tied up with a reliable decision intelligence platform.