Can digitisation save high-street banking?

By Amit Dua | 4 April 2017

Amit Dua, Executive VP & Global Head – Sales, Account Management and Alliances

Almost every aspect of modern life, including how we work, travel, shop and communicate has been digitised. Yet one sector has been dragging its heels on digital transformation, the traditional Financial Services (FS) sector. It is trying to digitise but struggles to overhaul old and outdated legacy systems. Time is running out.

There are entirely new ways of serving existing needs, for example wearables can provide biometric authentication and payments can be embedded within household items. These new services are significantly disrupting existing industries and their value chains. The growth of mobile internet has enabled 3 billion people access to the internet on the go. The major growth of social networks means companies such as Facebook now have 1.9 billion users, a larger population than any country in the world.

Platforms such as YouTube, Uber and Airbnb offer digitally enabled interfaces suited to the user’s needs. Soon they could become the high street banks’ real competition. 

The Fourth Industrial Revolution, the movement where technology connects and animates objects, has yet to fully penetrate the gargantuan FS organisations, with their old legacy systems and vastly complicated manual processes. Overhauling entire infrastructures within these organisations takes vast amounts of time and money, but digitisation is the key to remain in the game.

The warning signs

The warning signs are clear, recent partnerships, like the one between Challenger Bank ‘Tandem’ and retail store House of Fraser, who invested £35m into Tandem to access its technology, demonstrate the importance retailers place on improving customer offerings across all devices. They have seen what happens to laggards.

Traditional banks need to have a fundamental rethink about their approach. If they cannot supply the customers with what they want at the right time, they will become irrelevant to them. However, banks have a distinct advantage already, their existing vast customer bases.

Most new digitised businesses have to build their customer database from scratch. Traditional banks already have this in place. European tech startup Monzo, has recently received £65m in investment, the majority of this will be spent on building its customer base. This customer base gives traditional banks a head start but they need to monetise the customer data they have because they are still a long way from winning. 

Improve customer experience or else

With digitisation occurring rapidly, one option for banks is to branch out and collaborate with other sectors to become a multifaceted solutions provider for customers. The first enterprises to realise the potential of these partnerships were eCommerce sites and mobile payment platforms. Successful partnerships like this in China saw the amount exchanged via mobile payments grow to $5.5 trillion in 2016, which is three dollars for every citizen in the world's largest country.

Being able to scale plays an important part as online users want more service offerings delivered to any device. A report by Deloitte recently stated only 13% of customers have received customised information from their bank. FinTech disruptors are forcing banks to start looking at newer engagement models. Tech startups like insurance company for millennials ‘Guidewire’ and online mortgage broker ‘Zillow’ have set the standard for customer service, by providing personalised offers and complete end to end user experience.

Traditional banks have access, often limited at the moment due to slow systems, to static customer data kept in their Systems of Record. However they lack the contextual, real-time data that can be gleaned from social networks. By implementing user-friendly engagement models banks can integrate themselves into the customer’s lifestyle, informing banks on their customers’ behavioural patterns to predict future needs. Failure to do so means customers will ‘unfollow’ their FS provider. According to research, 69% of UK customers have closed accounts due to poorly targeted communications.

New engagement models create a data deluge which banks will have to manage. Using technological innovations, such as in-depth analytics helps streamline operations and create insights to improve customer specific engagement. In the past banks relied on an impersonal model to service every customer worldwide, without much thought about the customer as an individual, now with new technology customer engagements have to be more direct and personalised as customers expect Uber-esque service delivery.

Banks who will win out

In order to join in with the Fourth Industrial Revolution businesses must focus on two key aspects. Firstly, some of the challengers could form part of the traditional banks platform, traditional banks have the finances, challenger banks have the technology, partnerships could easily be created. Secondly, FS must adopt new business models of engagement and continuously improve these to make sure they remain competitive in the age of the customer.

When banks fully embrace this platform mentality, they will be able to offer their customers better service. Banks need to offer their customers personalised deals in a timely manner, thus increasing customer acquisition and improving customer retention. By doing this banks allow customers control over their financial future. The customer, in fact, becomes the central part of the bank’s decision making process rather than the bank’s products.

If banks can’t understand and implement this they will go the same way as the rest of the high street travel agents, video rentals, retail stores and bookshops, boarded up and out of business. 


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