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The Digital Banking Transformation; a shift in cultural, behavior and technology

Posted by: Claes Lemnell On December 01, 2015 11:42 AM

These days when market disruption constantly comes in many shapes and sizes, “Digital Transformation” regularly tops the list of mission-critical issues for banks. Most of the leading Tier1 banks have been on this journey for years now, but they are only halfway there, and still struggling. This is no surprise, given the breakneck pace of emerging trends such as IoT – Internet of Things, mobile ubiquity, wearables and what-nots, combining to create a new – and unfamiliar – set of customer behaviors and expectations.

To keep up and maintain the pace in this energetic, vibrant and ultra-dynamic disruptive financial landscape, traditional banks need to understand the challenges they face from differentiated customer behavior. They then need to subsequently adapt or reinvent their operational models. Banks have invested huge sums in technology – automating processes and online banking for customers – but still, we have not yet seen the fundamental transformation of business models that have already taken place in other sectors, such as the music, film or TV industries.

Today, the financial consumer standards are set by on-demand cloud services such as Spotify and Netflix – not by banks. This is particularly true for younger generations, also referred to as “Millennials.” They are Hyper Connected Customers;  always on-line, connected to each other and to various value stores. These Customers have quickly discovered that whilst banking is necessary, a bank is not. This trend is about abandoning the traditional banking as-we-know-it and seeking the service of a bank, not necessarily from a bank.

So how should banks confront this inescapable and yet imperative change? What strategies should they adopt in transforming their Digital Banking propositions to meet rapidly evolving customer needs and expectations?

These are my Top 5 recommendations:

1. Become Customer-Centric (and I mean for real..!)

Banking in the digital age requires a drastic, profound reset of how banks react to changing customer needs and expectations – not just in words, but in deeds! Instead of working “inside out”, banks must adopt an “outside in” approach where existing business models are rethought & acted upon. The starting point should entail moving to where customer is (online) and not trying to drag them to the branch.

As an example; Facebook, or any other social media, knows immediately the very second I announce my engagement with my fiancee [opportunity: perhaps loan discussions for new joint housing?] or my separation [opportunity: perhaps loan discussion for smaller apartment?]. For sure, I’m not calling my banker and mention the news of my engagement, the first thing after I proposed to her..

If banks were to be ”actively listening” (monitoring) to their clients on social media, they could actually be one of the first to congratulate me and at the same time propose a discussion, or even better, an offer for such loans..! I would feel a connection to my ”Financial advisor” and perhaps more likely to connect with them with a financial question in the future. I might not find their offer of interest for the time being, but I would be impressed by their effort, speed and willingness to have me as their client.

Value instead of utilities: The new value is in not being a “bank”. The new value is to understand the product and services in the life of a consumer and deliver those products and services on that basis.

Redefining the Future of Branches: What does the physical branch of the digital future look like? In the ideal scenario, banks will have flagship shops or lounges that elagantly and intelligently showcase their customer-focused retail brand and strive to offer face-to-face individualized advisory services in an attractive, engaging, warm and welcoming way. If and when I need it.

2. Make Flexibility Part of Your DNA

The market is moving so quickly that it’s pretty much impossible to predict what customers would want in the coming 10 years. Therefore, flexibility must become a dominant gene in banks' DNA. Moreover, 10 years is a laughable timescale, it is an eon in this rapidly-constantly-neverending-changing brave new world..

The time-to-market of new financial products, services and upgrades should be in the range of 6 months or even less. Many leading global banks tackle this need for speed by forming strategic partnerships with vivid providers of white-label FinTech solutions.

Another major roadblock hindering banks from acting flexible, is their existing legacy systems, which are often jokingly described as “spaghetti”. I’m very found of this Italian dish, but when it becomes a mess of loosely integrated networks – many of which still require manual interventions or actually are even older than the Internet itself – it will continue to be a major obstacle. Without addressing this issue, banks will face difficulties in becoming as agile as they need to.

3. Prioritize Segmented Mobile

It is now a reality, that mobile has become the ”epicenter of Digital Banking”. Several different researches estimates that more than half of the mobile devices sold today are smartphones, and that more than 8 out of 10 will be by 2020. They have now become the fastest-selling gadgets in history, outselling PCs 4 to 1.

Many of the bank executives I meet, claims that mobile is the ”cornerstone of their digital strategy”, as it has become the initial and primary touch point for customers. However, even if this is a good approach, most banks have put their mobile banking strategies and customers banking journey, through a “one-size-fits-all” approach, focusing (too much?) on features and offerings, ending up ignoring the needs of individual user groups which vary across age, location and income. This calls out for a segmented approach, which entails developing needs-based features and offerings for a much more “adoptable” mobile offering.

4. Promote Open Innovation & Experimentation

Due to huge pressure from regulation as well as cultural legacies, banks have become conservative and very slow to innovate.

I truly believe that open innovation ecosystems are the cradle of design and delivery in the digital era. Some banks are addressing this issue by opening their APIs and making them available to FinTech start-ups, then encouraging them to challenge, develop and experiment various solutions for them.

5. Use Analytics for Strategic purposes – not only operational

How banks will manage, utilize and monetize their data will play a key role in the digital shift. Many banks look to Big Data as the silver bullet in profiting from the massive amounts of information they hold on their customers. These insights help the banks to provide personalized recommendations and more contextual advice. However, most banks use data operationally, not strategically. They need to integrate different sources of data; not only from their own bank accounts but also from the customers use of other financial institutions as well as contextual data from social media and alternativeonline sources. Additionally, mobile behavior and online social media, can help banks understand how people are interacting with each other behind their transactions.

Wrapping up and Going Forward

One of the most important – and perhaps most difficult – change ahead for traditional banks, is the Mindset Change. The digital age is fundamentally impacting organizational culture as it forces the banks to shift from a product-centric to a client-centric point of view; from planning cycles to “test- and-learn”; and from silos to inclusiveness. No one ever said this would be easy, but I think this is inescapable.

Compared to the way digital disruption has transformed other sectors – such as music, entertainment, telecommunications and retail – it is clear that retail banks have barely scratched the surface when it comes to the necessary speed and magnitude of change.

To recap:

1. Forming strategic partnerships with capable FinTech partners is one way to catalyze this process, supporting banks in enabling quick access to the latest digital banking solutions with minimal time-to-market lag.

2. It is important that banks adopt a segmented approach toward mobile to ensure a seamless experience and to increase adoption.

3. Both transactional and contextual data need to be leveraged strategically to offer the most relevant products and services and to help customers to improve their financial well-being, while simultaneously generating new revenue streams for the bank itself.

Digital banking is not just about developing the next killer app. It’s about turning the traditional business model on its head and embracing disruption head on. This is my take – what’s yours?

Claes Lemnell is Heading the BFSI segment at Tech Mahindra for the Nordics.

Tags: Banking
 
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