Seven Drivers of Successful Digital Banking Evolution

Increasingly banks and credit unions must push on all fronts if they would transform their products and delivery along the digital lines that consumers have come to expect. Here is a checklist to guide your institution's digital advance.

The banking industry today is witnessing a significant disruption largely driven by the user demand for exceptional products/services combined with fierce competition from competing banks, non-financial institutions, new-age digital banks and fintechs.

In their quest for innovation, reduced costs, enhanced customer engagement and satisfaction — and shorter new product development cycles — banks and credit unions today need to embark upon digital banking initiatives and adopt various agile practices.

How can banks do this?

Here are the top seven drivers that financial institutions need to focus on for a successful digital banking strategy.

1. Adopting An Omnichannel Approach

Today’s digitally-savvy consumers expect technology that can make access to their bank accounts simple and streamlined. They want tailored banking interactions over the channel of their choice that can make their overall banking experience easy, quick and intuitive.

This makes it essential for banks to build an omnichannel strategy that can enable customers to engage with the institution using the channels they prefer at the times they want to engage. Some of these include mobile banking, internet banking, and Gen-II channel devices such as IoT-enabled devices such as voice assistants, wearables and chatbots.

The success of an omnichannel strategy depends upon the ability of a bank to deliver a uniform and integrated experience across channels, backed by real-time data synchronization between the different channels.

An example of such an omnichannel experience would be a customer starting his loan application on the internet banking channel at home and continuing to complete the application on a mobile banking app. The mobile banking app should be able to pick up from the point where the customer left the application on the internet banking channel.

However, to be able to make this jump to true omnichannel distribution, there are three capabilities that institutions will need to develop:

  • Marketing personalization across different channels, based on detailed data-driven insights into customer activity and sales journeys.
  • Advanced analytics and granular customer data to help banks with better targeting.
  • A qualified and motivated business team, equipped with required tools to operate in an omnichannel environment.

2. Digitizing All Financial Services

Customers today aren’t satisfied with just the basic banking facilities of withdrawal and deposit. They are constantly looking for customized banking options such as five-minute loan approval, digital transactions, trip-based insurance, digital onboarding and daily interest on savings bank accounts. And institutions can only meet such expectations by going completely digital.

Data suggest that retail banks that digitize their services could achieve a 20% increase in revenues and a 30% decline in their expenditures. Digitalization can even reduce the cost-to-income ratios by 12% for wholesale-banking.

While ensuring security and cost-efficiency are two of the key motivators for financial institutions, the real value of digitization in banking can only be ascertained by what it can do for the customer.

Going digital makes customers’ lives easy and lets them enjoy the simplicity that comes with managing all their finances in one place, from opening a savings account remotely from their home using video KYC to setting up automatic payments anytime and anywhere, without the need to physically visit a branch and wait endlessly.

3. Personalizing Customer Experience

While much of the discussion about personalization in banking focuses on marketing initiatives offered, its true potential lies in fully transforming all of an institutions’ customer interactions by using granular data and analytics to anticipate individual customer needs and offer solutions accordingly.

Investing in personalization tools is a smart strategy for banks and credit unions as it allows them to gain the trust of their customer base, increase the rate of conversion and see better rates of repeat customer business.

That’s why banks need to choose the types of personalization applicable to the niche customer base with the help of custom analytics and personalization tools. Such tailor-made solutions can help the bank deliver different types of personalization including:

Contextual personalization. This is an effective type of personalization that uses data from the customer’s previous transaction history and trends. For instance, based on a customer’s previous transactions and loan history, an institution offers bill payment reminders in the first week of every month and loan offers in the last few days of the month, providing a more personalized experience to the customer.

Behavioral personalization. This primarily determines the customer’s interest in the banking products based on their behavior and actions they take on the institution’s website, which includes search phrases, content viewed and functions performed.

Segment-based personalization. In this type of personalization, different experiences, including menu, themes, and promotions, are offered to customers based on the segment they belong to. Examples: Targeting a college student versus a working professional, or a full-KYC consumer versus a partial-KYC consumer based on their segment and preferences (in terms of menu options, app design, theme, color scheme) instead of putting them together in one segment.

Geolocation-based personalization, This kind of personalization is largely based on the real-time location of the customer or the city, area or state the customer is from. The tool used can display content in the local language to improve customer experience. An example of personalization based on real-time location is that a customer in a shopping mall will get cash back or discount offers for nearby shops, while the same customer while visiting a branch will get a token number with the queuing order to meet the institution’s representative.

4. Introducing Ecosystem Enablement, APIs And Open Banking

To remain relevant to their clients in all financial aspects of managing their global supply chains, financial institutions today need to implement multiple new strategies founded on connected commerce.

This approach largely utilizes the rise of open application programming interfaces (APIs) to build a well-connected network of financial institutions, open banking startups, software suppliers and fintech communities to adequately exploit the regulatory drive to be able to deliver a broad range of new services and products to market.

Institutions need to deploy these end-to-end open banking solutions as a central hub to deliver emerging products digitally. These could include data-driven services, real-time solutions, and new technologies such as distributed ledger tech.

Building such a robust open banking ecosystem is an opportunity for banks and their partners to create multi-channel solutions and to successfully create new commercial business models and sources of revenue.

By opening its APIs to third-party providers of innovative services, a bank can effectively become an open bank and enrich its core services. This happens by breaking down traditional barriers within the bank that resist change and promote active collaboration with others through a conducive ecosystem to keep pace with change effectively.

5. Accelerating Time-To-Market

When it comes to offering exceptional banking experience to attract and retain new and potential clients, speed is one of the primary differentiators.

Institutions today need to implement an integrated platform with open APIs, orchestration capabilities, connectors, among other advanced technologies to completely redesign customer journeys and the back-end processes to be able to systematically accelerate the time to market.

Additionally, financial institutions can also work towards increasing their market growth by decoupling UI/UX from code, thus enabling business users to manage the digital experiences in real-time, without relying on an engineering team. This way, they can ensure to transform the distribution model to a digital ecosystem, improving their value propositions and developing end-to-end seamless customer-centric journeys rapidly.

6. Offering Frictionless Payment Options

As part of digitization and increasing competition from innovative service providers, banks and credit unions need to completely revamp their payment services to effectively cope with people’s changing requirements.

Two of the most crucial factors for success here include a high degree of flexibility offered in payment solutions and clear customer orientation.

To be able to boost their top and bottom lines, institutions need to turn to digital technology to reduce payment friction and enhance the overall customer experience. This essentially translates to offering swift, secure and frictionless remote and contactless proximity payments to consumers using prepaid wallets, NFC (near field communication), HCE (host card emulation), and QR codes.

HCE here is the underlying technology that allows institutions to create virtual versions of their physical credit and debit cards on mobile phones and tap the NFC POS devices to make payments at merchants swiftly.

To make these transactions secure, institutions use tokenization. This process converts a customer’s card information into a device-specific digital token. This way, a digital token is shared while executing a transaction, masking the customer’s actual card information and securing the transaction.

Some examples of institutions offering such contactless payment options include SBI Card Pay and IDFC First Bank SafePay in India, Barclays contactless mobile pay in the U.K., and Commercial Bank of Kuwait (CBK) contactless payment through the CBK app.

COVID-19 has further driven a surge in such contactless payments, including online cash, mobile wallets, and frictionless apps. This kind of diverse and safe online checkout experience, which includes options that allow consumers to keep their financial details private from the merchant, is only going to become more popular in the future, pushing banks to up their game in this area.

7. Experimenting With Services Based On Market Demand

Banking today is being disrupted by cloud-first techs, digital-first banks and fintechs, as well as the rapid proliferation of various digitally-enabled service providers who have completely transformed the landscape of services.

To navigate effectively, banks today need to facilitate the strategic determination of customer journeys to optimize their digital experiences with great accuracy.

With the advent of advanced analytics and customers’ increased affinity towards contextualized recommendations, banks have an excellent opportunity to make the most of the available data to better understand customer preferences and get close to them.

The prime need today is for a robust digital banking platform that helps perform AB testing on multi-variants to decide the most optimal experiences and roll out the winning variant to the wider audience. For instance, conducting an experiment to ascertain the right messaging, theme and placement to promote higher loan applications to your niche customer segment.

Preparing for Digital Transformation

The last few years have seen the banking customer journey completely re-engineered, courtesy of the rapidly advancing digital banking landscape.

While the objective of this has largely remained unchanged —to match (or better) the level of frictionless, digital experiences for the customers — the very scope of this transformation has expanded significantly.

To be able to successfully ride this digital wave and ensure a comprehensive digital transformation across their value chain, financial institutions today need to ensure that they have the right strategic mix of automation, experimentation, analytics and personalization tools in place that can support this and help them build for rapid change.

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