As the financial services industry is constantly on the tackle short- and long-term challenges due to the COVID-19 pandemic market disruption, banks are facing a completely digital reality powered by accelerated digitalization.
Banks, that have for years relied on legacy technology and traditional processes, will be hard pressed to survive and remain competitive as new modes of operation amongst technology-driven, agile competitors push the pack forward. Banks will eventually face two options: embrace the methodologies of innovative market competitors, or risk losing long-term customer loyalty and thereby, revenue.
To build a secure future for themselves, banks must begin designing customer-centric solutions and making smart use of the assets and partners available to them. They must champion flexibility and scale to increase the value they deliver, as they enter a new era of competition.
Banks were already under pressure to accelerate their digitalization efforts and revitalize the customer experience pre-pandemic, and COVID has forced their hand. Based on a recent survey by management consultancy firm McKinsey, the pandemic has not only accelerated client demand for digitally banking services, but clearly shown that bank customers are placing a higher reliance on their advisors over these uncertain times – bringing the significance of customer experience into sharp focus. It's clear that banks cannot keep limited progress. It's about an entire step change and an knowning that digital is now the norm, not really a 'nice-to-have'.
Customer and Competitor Pressures Mount
Especially over these disrupted times, the looming threat of customer recession and competitive challengers are catapulting banks' technology projects – a few of which are long overdue – into overdrive. Because the Bank Governance Leadership Network (BGLN) recently highlighted, COVID-19 has accelerated the industry pivot to digital, and new challenger banks and FinTech providers are required to challenge the notion of customer trust. While banks have understood the need for digital transformation for years, they now recognize the urgency to adapt so they can better manage rapidly changing customer priorities and market conditions.
With the doorway of technology goliaths like Google and Amazon, and user-centric banking and fintech platforms, like Venmo and PayPal, which leverage customer data to create not only reactive, but predictive customer journeys. Customers have come to expect bespoke and seamless user experiences, and as their expectations heighten, banks that don't offer solutions that follow the whole customer journey will soon remain behind, ultimately forfeiting loyalty and retention inside a generation of customers that values hyper-personalized experiences.
Digital is not an option for businesses – this is an imperative. And none more so than banks. Most banking customers today wouldn't even consider opening a merchant account at a bank that did not have best-in-class digital capabilities. It is critical that banks develop comprehensive plans that will enable them to accelerate their digital transformation initiatives and deliver a new level of personalized customer offerings. To achieve that, they will need to reimagine their holistic systems, processes, data and people.
Transforming the Core: Risk Reduction via Redesign
Though the ever-evolving demands of customer expectations and competitor innovation seem insurmountable, banks are actually well-positioned to compete. The key to reducing business risks lies within creating a clear digital strategy and redesigning core processes, leveraging their pre-existing data assets and partnerships.
By adopting a digital core and 'hollowing out' customer engagement functions in the core system, and managing it as being a horizontal cross-enterprise layer, banks can take a low-risk, modular approach, and will be offering enhanced product innovation capability, sophisticated customer data management, partner ecosystem and revenue management.
The digital core, which captures and meticulously logs the information from every customer interaction, relevant private information, purchasing patterns, and more, is integral to improving customer centricity. By tapping into customers' data, banks can leverage their information to meet their unique needs, create and bundle products, services and offers for any customer segment, and adopt relationship-based pricing strategies and start up business models.
Furthermore, by utilising partnerships that maximise economies of scale, banks can easily adopt new technologies, add more functionality, enhance the customer experience, provide customised internal and external products and integrated services. Most importantly, they can do this whilst maintaining ownership of the customer relationship and value prop.
Cloud: here today, and here to stay
The recent pandemic disruption highlighted the need for stable, reliable technology solutions that may weather market volatility. Especially as internal and customer functions faced increased risk and disruption, banks saw first-hand the necessity to embrace cloud capabilities to maintain a competitive edge.
Cloud computing offers banks the opportunity to innovate at faster and lower costs, increase the amount of services and offerings to customers, while monitoring and preventing revenue leakage. By reduction of time to market and thereby creating new revenue streams, banks have the opportunity to accelerate their customers' digital transformation journeys in an accessible price point.
Banks have begun to recognize the value that cloud infrastructure can offer their customers, and savvy organisations will take full advantage of cloud deployment's benefits for their digital transformation projects across pricing, billing, product, loyalty, deal, offer, partner monetization, and tax management processes.
The chance of banks is to leverage the cloud's flexibility, agility, scalability, high end, security and strong reputation in handling large volumes of transactional data and functionality to translate it into value for his or her customers, instilling confidence in their ability to keep up with nimble industry players.
Keeping the client at the center of design
In order to design solutions that keep customers content, banks musts measure the value that their products are offering to customers. With customer value, comes customer trust – and with trust, comes loyalty and eventually business longevity. When designing solutions, banks must take similar strides to their fintech competitors – the most successful of which offer not siloed, but rather experience-based products and services.
Undoubtedly, the bank of the future will orbit around the growth of Solutions as a Service – providing hyper-personalized products and services for any customer segment, adopting relationship-based pricing strategies, and optimising billing processes. For banks to outlive in this hyper-competitive market landscape, reinforcing value to customers is going to be paramount. Banks need to understand what customers truly want, and what they are trying to achieve with every interaction. Essentially, banks will have to shift their mindset to think like a customer, anticipate their needs, and restructure their traditional process to design holistic solutions focused on those needs.
Now more than ever, it's imperative for banks to focus on agility, scale, and speed to succeed in their digital transformation journeys. Driven by market competition and increasing customer demands, banks must build the bank of tomorrow, today – embracing the flexibility and cost efficiencies of partner models, existing data assets, and cloud computing to construct experienced-based designs, deliver true value and ensure customer loyalty.