Digital Banking - Old Wine in New Bottle?

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There was a time when digital banking was perceived as synonymous with online banking and mobile banking. Financial services industry, along with other sectors, is experiencing an explosion of digitization thanks to smartphones, tablets and access to affordable high-speed internet. The number of smart phone users is expected to equal the number of bank accounts in near future as all mobile users link their bank accounts to their smart phone and get onboard with mobile-based digital wallets and savings platform.

Given this, it is imperative to take a fresh look at whether digital banking means the same as it did a decade ago – both for banks as well as customers – especially since there does not seem to be a consensus on the definition of ‘digital banking’. Whether digital banking is just a jazzy buzzword which will fade away like other buzzwords or an attempt to serve old wine in new bottle by glamorizing online banking, the real challenge is to anticipate and understand what customers expect from their bank in the digital era, how far banks have been successful in meeting those expectations and able to tackle the bottlenecks and road bumps on the journey to digital nirvana.

Customer Expectations

Technological disruption turned the tables such that banks that are centuries old having a global presence now feel threatened by FinTech startups chipping away at their business with cutting edge technologies and fast track service delivery model. Unlike the baby boomers and Gen X customers, Millennials do not think twice before switching their bank. Banks no longer enjoy the luxury of “customer stickiness”, once the keystone of their edifice. Even non-banks such as Google, Apple, Facebook, Amazon, ebay, etc., are regarded as competition because they are setting up the standards for customer expectations related to ease of use, integrated access, speed of delivery, real time updates and customization.

Digital customers are no longer content with basic online and mobile banking; they expect their bank to offer a wider and richer range of features such as social media collaboration, real time interactive analytics, targeted cross-selling recommendations including appropriate third-party offers and Omni- channel delivery at competitive prices.

Customers today do not have the patience to navigate through multiple screens. They do not want to fill the same KYC details over and over for each product. Presenting paperwork at the branch to support an online application is a big no-no. They expect to resume the application they started on Smart phone on their home computer and may want to talk to the customer care executive on phone while doing that. They do not want to be bothered with cold calls and random sales pitches; they prefer to see only personalized and contextual cross-sell offers with direct purchase links. In short, digital customer today wants one-touch, one-click, personalized and integrated user experience across channels.

On the flip side, while customers enjoy the convenience of digital banking for routine tasks, they also want to continue using the branch when they need some face time with a seamless switch between digital and personal interaction. They do not want to forego the privilege of walking into the local branch despite being able to do all their banking via the web or smartphone.

What is at Stake for Banks - Traditional vs. Digital Model

Banks have had it easy for a long time. Competition was minimal, customer turnover was negligible and business was nurtured based on trust-based personal relationships. There was really no need or pressure to change this model other than making a few tweaks and putting Band-Aids to decades old technology to ensure compliance and pacify the regulators.

Branch has always symbolized the ‘bank’ and is viewed as the primary channel whereas all other channels such as the web, mobile, tele-banking, etc., are regarded as alternative channels that supplement the core channel. In digital world, alternative channels have become the driving force shaping a new service model with the branch relegated to a supporting position.
While online banking encompasses facilitating, via the web, all the core banking services such as deposits, savings accounts, loans and payments provided by a traditional brick and mortar branch, digital banking goes the next step by digitizing almost all aspects of banking - from service delivery to operational model.

The goal of digitization is not limited to providing the customer with the entire spectrum of banking services across the channels seamlessly, economically and efficiently. While that may be the end, the journey of digitization also involves the means to achieve that end – a complete overhaul of the legacy systems, rethinking the organization culture, redesigning the service delivery model and constant evolution in tune with the new and developing technologies while dealing with FinTechs and non-banks eating away at the pie.

In the agile digital paradigm, a bank’s webpage does not just monotonously describe its products; it facilitates an educated decision by the customer by providing a rate comparison with competitors and why its offer is the most advantageous. It does not merely provide information related to account balances and transactions. A savings account page allows the customer to set up savings goals and projects how far or near the customer is from reaching that goal. A credit card page just does not list out transactions and cautions about the due date for payment. It also provides expense trends, changes since previous billing cycle and advises how the customer can achieve the next tier.

A solid digital model empowered with a 360 degree view of customer data and smart data analytics can even go the next step. It can marry the credit card and savings account data of customer and provide various alternatives such as what expenses on the credit card can be tweaked to reach the savings goal, project how each tweak can affect the savings goal on one hand and the credit card next tier goal on the other hand and provide a perspective about if the benefits of reaching the next credit card tier can make up for delay in achieving savings goals. If the customer books flight tickets using the credit card for a Cancun holiday, the bank should be able to offer travel insurance and foreign exchange instantly as well as providing hotel suggestions and retailer recommendations for beachwear and renting snorkeling gear; not to forget offering attractive loyalty rewards for acting on those recommendations.

The Path Ahead

An intuitive digital model mandates sophisticated solutions backed by a dynamic operational strategy, which is a tall order considering banks have never been known for their agility. The challenge is not the lack of sophisticated digital solutions but banks’ typical tendency to confirm to tradition, employee resistance to change and indifference to keep up with changes.

Banks are just lacing up their boots to join the digital race; but they cannot run this race by themselves and hope to win. Meeting digital customer demands requires fundamental changes in the form of infrastructure renovation and strategic partnerships backed by nimble executive direction. In a fast changing world with multiple options luring the customers, banks can no longer rely solely on external IT vendors. They need to groom in-house agile teams and foster collaborations with compatible FinTechs that can complement banks’ digital aspirations. They must work closely with an army of other experts such as graphics designers, digital media specialists and big data analytics teams. They need to tie up with social media platforms, retail merchants and e-commerce vendors to maximize consumer engagement.

The message is clear: Unless banks are willing to shake off their lethargy and reinvent themselves, their digital offerings are indeed old wine in new bottle trying to pass vanilla online banking as something new, different and sophisticated.