Banking in the Digital World
While established banks struggle with their legacy systems, smaller players and new entrants are quickly adopting new technologies. Avishek Mukhopadhyay surveys the scene.
The digital revolution sweeping across modern society has affected almost every business in every sector, yet analysts and critics repeatedly point out that banks have been slow to embrace this change, that banks have hardly changed their business model over the last few decades and, as a result, modern technology companies like Google and PayPal are threatening to disrupt its business.
Faced with market and regulatory pressures coupled with customer, cost and operational challenges banks are belatedly looking at implementing innovative digital technology solutions to withstand this pressure and create an atmosphere of growth and customer satisfaction.
However, this is easier said than done because most of the banks are saddled with legacy IT systems which are very hard to integrate with modern technologies. According to estimates, around 80% of the IT budget is allotted to maintain existing IT set up (so-called ‘run the bank’ spending) and another chunk goes towards managing regulatory requirements leaving very little to fund initiatives which are futuristic in outlook. Yet the single biggest advantage which most of the banks still have and which needs to be leveraged to the maximum is “Trust”. Customers have entrusted banks with one of their most valuable assets – money – for years and continue to do so.
But there are some trends in digital banking that are being slowly adopted by the banking industry as a whole.
In the past, hugely reputed companies like Kodak, which was the pioneer of photography, and Blockbuster, which had revolutionised the video rental industry failed to step up to the digital challenge and in the process could not maintain sustainability of their business model. Albeit late, most banks are now taking the digital revolution seriously and lately we are seeing some clear trends emerging.
Unlike banks, customers do not see channels as silos which must be managed and operated efficiently. Customers view different channels in the context of completing their overall journey. They use different channels at different times based on availability and functionality. This trait is similar to the retail and consumer products industry where Omni channel behaviour is the mantra for most marketers. It is not enough for banks to provide an application for each channel rather, every piece of software has to be linked and provide a seamless journey to the customer. The loan application example below demonstrates this where the journey is covered across different channels in a seamless manner.
Changing face of branch banking
Modern banks are positioning themselves as lifestyle brands and redesigning branches which are beginning to look more like retail superstores. Banks, especially in prime urban areas, find it uneconomical to cater to customers who are visiting branches for mere routine transactions. In these branches banks are keen to sell high end products and position themselves like a modern retail superstore with highly personalised environments.
As a result, we are seeing a slew of branches which have self-help kiosks or video assisted tellers performing routine transactions while human interaction is provided to carry out more complex sales processes like a mortgage or a retirement plan. The inspiration of designing these branches is coming from the ultra-modern and chic Apple superstores. Some banks are also in the process of establishing their branches within shopping malls so that users do not need to pay a visit to the bank branch separately and can carry out banking during a regular shopping trip.
Moving towards a personalised experience
Increasingly, banks are realising that providing mere online transactional capabilities are making them a commoditised service and they need to break that barrier to be truly differentiated. Online banking has become a commodity service with many consumers searching for a more personalised experience. Banks have Amazon as the benchmark when designing a personalised experience – although most are not able to provide that kind of an experience despite having vast amounts of customer data residing in their database. In many cases this data is richer than even Amazon’s, yet banks have not been able to come up with a similarly rich customer experience. One of the reasons for this shortcoming is the multiple silos across which customer data is stored that are not being leveraged as much as they could or should be.
Cutting edge financial management and other digital tools which capture consumer behaviour and enable personalisation will be instrumental for banks in creating an enhanced long term relationships with customers. Banks already possess a significant amount of customer data gathered over a long period of time and, when mined, this data can pretty accurately create a picture of customer’s lifestyle including spending habits, savings, investments and insurance plans.
Banks can create innovative personal management tools and provide the right contextual advice using a mobile device for creating lifelong memorable relations. For example, if a customer is planning to carry out an impulse purchase and the personal finance management tool’s dashboard is able to signal that there is an impending mortgage payment in a couple of days which might be missed if the impulse purchase is made, then the customer is likely to be grateful to the bank for the reminder.
Emergence of the mobile channel
This is a trend which is widely prevalent across all industries. With the increasing penetration of smartphones, especially in the developed world, coupled with the coming of age of the Facebook generation, this trend can only go northwards with each passing day. Today mobile is being increasingly used as a primary channel of banking and, the potency of providing relevant contextual information on mobile phones has already been shown to the world by consumer centric industries like retail and travel. Here again many banks are falling short of expectation. It is extraordinary that some banks still do not have a mobile optimised site. Banks are still thinking inwardly when designing mobile capabilities and try to replicate online functionalities in their mobile banking apps, like balance check and money transfer. Though these are necessary functionalities, there are numerous other use-cases where a mobile banking application can, leverage the power of geo-fencing, augmented reality, analytics and social media. Banks need to draw inspiration from the retail and consumer goods sectors while conceptualising these solutions.
Digital Only Banks
Some thought leaders in the digital banking space think that banks will eventually have to move away from customer management and concentrate more on the underlying backbone that is product, risk management and infrastructure. A new set of companies are emerging which take care of the customer layer i.e. ensure that customers have an optimum experience in the channels while the actual money and underlying infrastructure lies with a traditional bank.
Simple, which partners with CBW Bank and Bancorp, which are federally insured banks and hold customers’ money, offers its customers free checking accounts and data-rich analysis of their transactions and spending habits. Simple has built slick apps for the web and mobile devices to give customers an overview of their accounts and transactions. Customers can see their transactions plotted on a map or search for all transactions in a particular state or country. This is something that would be difficult with a traditional bank account because of its underlying legacy systems and complex decision making processes.
Spanish bank BBVA has been at the forefront of digital innovation for many years. BBVA’s platform is a loyalty mechanism that uses gamification techniques to increase engagement with customers. The BBVA Game is run through a microsite that presents customers with challenges, divided into milestones, which they must achieve to obtain medals and points that can then be exchanged for rewards such as iPads, smartphones, and tickets to events. Gamification helps to drive participation, engagement and loyalty because it is directly linked to human instincts like achievements, rewards competition and altruism.
The Commonwealth Bank of Australia has created a game to simulate property investment, providing users with access to real-time market prices and expected costs, without the user having to spend any real money. This game is aimed at existing home-owners, and those who already own property investments, aiming to allay the fears and misconceptions some individuals can have about owning a second (or third) property. The game, while staying simple to the user, utilises complex economic modelling and real market data, to familiarise users with the experience in order to make them more comfortable when considering a further property investment in the real world.
Banking is being taken to places where Generation Y and Millennials spend most of their time – on social networks. Increasingly banks are integrating social media components into their online channels and we are beginning to see use-cases like transferring money to one’s Facebook friends or login to the bank using Facebook ID. Some banks are also allowing customers to bank within their Facebook profiles. For example, ING Direct in Canada allows users to login to their bank ID from their Facebook profiles using an iframe. Deniz bank in Turkey has launched its Facebook ‘branch’ or app which lets it customers access their deposit and credit card accounts, see their account status and purchase history, an overview of assets and liabilities and send money to friends on Facebook. There’s even an integrated financial and Facebook calendar.
Innovative use of video/video Banking
Video banking offers banks the ability to expand the reach and convenience of customer engagement in a comparatively low-cost fashion. The most common uses of video in recent times are interactive teller, ATM with teller assists or in-branch video conferencing.
Recently, Citi rolled out a new kind of ATM designed to help customers do virtually all their banking without visiting a branch and it is equipped with an online banking connection, video conferencing and biometric identity authentication. Earlier this year, Bank of America launched a new ATM service called Teller Assist that allows users to have a video conversation with a human teller at the machine. Using the new ATMs, customers can cash cheques, receive cash withdrawals in various denominations, deposit cheques with cash back, split a deposit into two or more accounts and make loan or credit card payments.
Ziraat Bank in Turkey has deployed a network of unstaffed video kiosks which it calls video teller machines, that use video-conferencing to connect customers with agents in the bank’s contact centre. Customers can use the kiosks to deposit and withdraw money, buy and sell foreign exchange, pay bills, transfer money and buy bonds. The kiosks let the bank expand its network much more quickly than building conventional branches would do.
Going forward most analysts are of the opinion that banks need to put their foot on the accelerator and invest in more digital opportunities in line with the growing needs of their customers. Inspiration is readily available from retail, travel and consumer goods industries which have embraced digital initiatives and today are able to significantly engage their consumers through effective usage of digital channels. Banks need to simplify their traditionally complex layer of decision making process and make it more nimble to embrace digital revolution.