Digital transformation in banking is a necessity, not an option

  • Posted on June 8, 2016


The Financial services industry has been flooded with innovation, most of it coming from fintechs (startups with the objective of delivering financial services digitally). Digitally driven changes are causing a great impact on the way people interact with these startups as well as with traditional financial institutions.  Moreover, digital alternatives are opening the eyes and minds of consumers to new possibilities in banking. 72% of millennials would be likely to bank with non-traditional financial services companies. In turn, these consumers are encouraging (and almost forcing) change in banks' attitudes towards their customers.

Effortlessly, some names echo to our minds when it comes to fintechs, such as PayPal (US), Zenfits (US), TransferWise (UK), Ant Financial (China), iZettel (Sweden), and NuBank (Brazil). All of them came to market with one single purpose: providing uncomplicated financial services with a mind-blowing great customer experience.

So, the big question is: what made those recently born companies (comparing with traditional banks) reach U$ 1Bn valuation so fast and be considered a substantial threat to the current system?

Fintechs are getting the attention (and deservedly so) because they are creating new opportunity in a static industry. An unprecedented introduction of new banking technologies is changing the traditional banking products and services that are offered and delivered. For example, new currency and payment options, lending alternatives, and branchless banking offerings are changing the consumer’s perception of how banks should operate. While Blockchain (the technology behind the cryptocurrencies – such as Bitcoin - and smart contracts) is not yet widely used, it is changing the consumer’s perception of currency and how value can be exchanged. Ethereum is an example of a fintech that has emerged on top of this technology and we are already witnessing other fintechs emerging around the world leveraging Ethereum’s technology to offer new methods to trade value.

Peer-to-Peer (P2P) lending is another example of a fast-growing alternative that is threatening traditional banking approaches - the money-lending process. While it is yet to be seen if these technologies will see mass adoption, their impact on changing what consumers how consumers buy and use banking services is undeniable.

But the most important impact of the fintech boom may be the change to customer expectations. Fintechs are introducing consumers to a new banking reality - a faster, easier-to-do-business-with, and, in many ways, friendlier banking experience. Fintechs has definitely raised the bar with regards to customer experience and this change is now the new normal.

Banks that cannot transform to support this value proposition risk losing customers and revenue to digitally focused alternative financial services providers.

This is the main concern of the traditional financial institution.  They need to find new effective ways to acquire new customer, but most of all, strengthen customer relationships to prevent flight to alternatives. This line from a recent McKinsey and Company study captures the essence of how the Fintech experience is changing how customers consider banks:

”…how companies engage customers in these digital channels matters profoundly - not just because of the immediate opportunities to convert interest to sales but because two-thirds of the decisions customers make are informed by the quality of their experiences all along their journey…”

Moving Transformation Forward

Even though “transformation” has been overused these days, it is the right word to characterize what is happening with the customer experience in banking. They are already ahead of many banks in how they use digital technology to transform how they manage their financial lives. In response, banks are transforming multiple facets of customer engagement. Consider the State Bank of India’s new digital branches as an example of banks transforming traditional banking formats and processes to be relevant and valuable to customers in the digital age. While there are many ways banks can move digital transformation forward, three overarching factors may mean the difference is achieving successful transformation that retains customers and attracts new ones:

  • Personalization: Customers want banks to offer products and services based on their unique needs and situation rather than what institution has to offer. Banks that successfully transform their customer experience will anticipate the needs of customers instead of merely reacting to them.
  • Involvement: Customers want to be involved in making financial decisions. Banks must find ways to keep customer educated on financial services and give them the tools to, easily and accurately, control their financials. Digital transformation will involve provide customers with more ways (channels, tools, etc.) to manage their finances anywhere, anytime.
  • Empowerment: While customers want to be involved and empowered, so do a banks employees. Successful digital transformation will highly depend on banks using digital to empower their employees to deliver improved services to customers. Strategies for creating a Digital Workplace include enabling and empowering employees with the right information and tools regardless of location to deliver the advice customers need to thrive.

Today’s customers want their banks to be partners focused on relationships and advice rather than just transactions. They want their bank to be partner in their everyday lives or business activities offering the products, services, and support they need to thrive. In this sense, banks who effectively use customer information, the power of analytics and digital channels to drive growth, reduce costs, in real time across multiple platforms will, definitely create impactful and meaningful customer experience and thrive in this race.

Avanade helps banks use digital as a game changer in building stronger customer relationships, enabling banks to more effectively interact with and support today's digital savvy customers in ever more specialized ways across any channel.

Priya Sinha

Banking sector is keen to adopt innovations and so are they fast in the race to embrace digital transformation. It is mandate for them to be on top as people are more inclined towards online usage rather than being in queue for their banking operations. Digital insurers are also seeking opportunities and making commendable strategies to be equally participating the change.

December 21, 2017

Henry Jacob

A very informative article to read. Thanks a lot for sharing this. Good Work. Keep it Up.

August 15, 2016

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