Digital Transformation: An Opportunity for Retail Banks to Overcome Challenges in the Digital Age
Lord Blackwell, Chairman of the 250 years old Lloyds Bank said that the banking industry has seen unprecedented changes in the last 10 years compared to past 2 centuries of its existence. The changes have been transformational which re-defined the way banks thought, conducted and perceived business.
The digital transformation wave has completely upended the banking business with game-changer technologies like web, mobile and most recently, Artificial Intelligence. Over 1billion transactions are conducted through mobile and internet banking with 2359 high-street branches closed in last two decades. Mobile apps are winning the race with 15000 people downloading a banking app per day. Customers are expecting personal and customer services akin to their e-commerce engagements. This uberization of services has enabled Fintechs to fill up the void left by uptight banks through tailor-made and digital services.
But Banks have seen the writing on the wall; “Digitize or Die,” and many have leveraged their large customer base, platform efficiencies and global reach to re-define customer experiences. The digital revolution has entailed comprehensive technology investments, process managements, customer centric innovations and governance changes. Infact analysts point out that the global financial sectors are seeing a growth spurt and have pulled themselves out of the recession induced rut of 2008.
So, it is time to capitalize on the capitalize on the emerging opportunities across the globe.
Regulatory Challenges
After 2008, banks across the world were blindsided by the regulatory and compliance over reach by regional and national governments. Data privacy concerns, GDPR laws and more recently BREXIT show that regulatory changes are not abating. Banks will face more legal and environmental changes which can be overcome through systematic technology adoption. Banks are intensely focusing on data analytics, artificial intelligence, biometrics and all back-end interfaces. Every decision and workflow will be determined through analytics and will be effective in risk management.
Emergence of Fintech
The cost to income ratio for banks has been steady over the past decade with regulatory pressure sand increased spending for cyber security. The income prospects have been pretty subdued with rise in cost of credit, cyclical downturns and macro-economic changes. The churn in the banking industry has led to the emergence of digital competitors like Fintech, nimble, responsive banking service providers with an overwhelming digital presence. They provide specialized services with on digital platforms and are undercutting banks and large financial institutions. But banks are capitalizing with open platform as never before. They are leveraging Fintech abilities by providing platform services and customer reach as never before. This symbiotic relationship is actually becoming an opportunity for banks.
Digital Transformation: Automation, Artificial Intelligence and Big Data
Banking institutions are not anymore giant monoliths. They are data goldmines that hitherto separated in to siloed systems, can deliver maximum value. Banks are replacing their disparate systems to create cloud based unified infrastructure. Data integrity and data security are becoming paramount importance. For example, PSD2 regulations are driving for more accessible data for third party providers whereas GDPR is placing premium on data privacy. Banks are replacing legacy systems and strengthening their core systems and governance policies. Future ready applications with machine learning, artificial intelligence, RPA, big data analytics and cloud computing are re-inventing business workflows, customer engagement and decision making. Banks also need to may not be moving ahead with rip and replace policies but are making cautious steps to reduce risk and costs. Digital transformation enabling organizations to be more nimble, responsive and agile to market changes and help them embrace more tectonic changes like Blockchains that will emerge in to the mainstream soon.
Customer Centric Banking
Banks are moving ahead with customer activities like 24/7 virtual services, self service capabilities, digital assistants and chat bots, voice banking and total banking. Automation and Artificial Intelligence has completely revamped banking work flows. There has been wide spread attrition in lower level manual jobs with customers preferring self-service digital channels. Banks are moving ahead like a technology company by focusing on automation of all repeatable tasks. Customers prefer a seamless Omnichannel experience and AI is the only way to move forward. Emergence of IoT and voice-based assistants like Alexa are forcing Banks to move to speech-based interactions. So, the learning curve has been stiff with web-first, followed by mobile-first and then now AI-first banking.
Digital Transformation: The Road Ahead
Banking organizations are moving full steam ahead with digital investments. These are earning them dividends in terms of customer reach, engagements, efficiencies and ROIs. But digital natives and connected customers are looking for more personalized experiences and will move to platforms that provide them. Digitization will enable banks to be more responsive to customer and market needs and remain relevant in the changing economy.