Can Banks Survive (And Thrive) In the Digital Era?

For traditional, consumer-facing banks, adapting to fast-moving technological changes can be a matter of survival. Facing competition from new tech-forward competitors, as we wrote about last week, most banks have already begun this transition. In many cases, however, it has not been a smooth journey. Use of mobile and online banking platforms is still relatively limited, and different banking channels often operate in silos – hindering ease of use. How can banks overcome challenges encountered with introducing services via digital channels?

First Humans, Then Technology

The emergence of new technologies has opened new channels through which financial institutions can deliver services to their customers. Smart devices, in particular, are packed with different technologies that offer new opportunities for service delivery, such as apps, mobile Internet browsers, geo-location, and even biometric input as unveiled in the new iPhone 5S.

Initially, many banks aimed to keep up with the emergence of new digital technologies by pursuing a short-sighted strategy: offering existing services via new channels in a siloed fashion. According to Tom Wills, Director of Ontrack Advisory in Singapore, this can be confusing for customers and create security vulnerabilities, with fraudsters and hackers able to exploit the weaknesses of disconnected channels.

Ultimately, cross-channel banking offerings have often failed to take into account one key factor: how customer behavior differs via each new channel. With usage flagging, banks have learned that simply cut-and-pasting existing services into emergent digital channels is not enough.

According to a recent Banknxt article: “Banks think they can copy what they did before and apply the same strategy to their multi-channel banking projects—not realizing that computers, tablets, and mobile devices are all completely different channels that deserve separate and optimized approaches.” In effect, many banks have failed to take into account customer needs, and instead prioritized the introduction of new technology over human-centered design. In a recent blog post, Chris Skinner of the Financial Services Club asserted: “the digitalization of the (banking) relationship needs harmonization with the real world.”

Beyond Buzzwords

From multi-channel to cross-channel to the new-and-improved “omni-channel,” buzzwords have proliferated to describe the way forward for banks amid the growing tech frenzy. But at the core of all of these words is a simple question: how can banks deliver a seamless user experience across the range of devices and channels available to customers?

Banks are shifting from a “build it and they will come” mentality to identifying exactly how and why specific customer segments are using specific channels, and meeting them there. Customers no longer use only one channel. Rather, they may begin the journey on their mobile, continue it on their laptop, and complete the process at their local bank branch. But, according to Dr. Manuel Thomet, Head Banking Consulting at additiv, they should expect a seamless journey across all three.

And that is the direction in which the next generation of banking systems is moving. According to a CapGemini report on trends in retail banking channels, “offering the right products to the right customer segment through a desired channel” can result in overall cost savings and an enhancing the customer experience.” Taking this process a step further – ensuring seamless integration across these customer-centered channels can encourage active usage of new channels.

Private Banking Goes Digital

While retail banking reaches more of a mass consumer base, technology advances have also reached the hallowed grounds of private banking, where clients often expect the utmost in personalization and service. In this sector, banks have similarly struggled to leverage new technology to more efficiently interact with clients while maintaining the personal touch.

According to Thomet, client advisors in private banking often have hundreds of clients but limited time, making it difficult to effectively manage each individual with the attention they expect. His company’s Advisor solution, accessible via all digital channels, enables advisors to streamline standard interactions with clients, from providing buy/sell recommendations to inviting them to advisory meetings or bank-sponsored events. Cutting the manpower required for client interaction, the product enables advisors to strengthen relationships with existing clients, and even to reach more clients than previously possible.

Stumbling Blocks

Although industry analysts and banks seem to know the way forward – designing seamlessly-integrated and human-centered digital platforms – the challenge has been in execution.
One key concern, according to Wills, is how to understand and address security issues that arise in omnichannel banking environments. “Every single new technology and combination of technologies that gets added onto smart devices introduces new security vulnerabilities into the mix,” he said in a recent interview.

As financial institutions introduce new channels for service delivery, for instance, they are ceding some control over the services – outsourcing certain portions of the value chain to ecosystem partners such as mobile network operators. Thus, Wills said, banks need to have a strategy in place to conduct risk assessment of new technology and proactively invest in security against potential risks.

The seemingly-constant evolution of technology can also present a challenge. While banks need to ensure consistency of service across multiple technological platforms, how can they ensure that their offerings are supported by all devices and operating systems. For instance, what if a customer has an Apple smartphone and a Windows tablet? How will the user experience differ across these environments, and how can banks ensure a smooth experience regardless of device or operating system?

Further, as they integrate new channels, banks will need to re-imagine the roles of “legacy” banking channels, such as branches, ATMs and mail-based services. While these avenues of client interaction will not become obsolete anytime soon, the services that they provide will begin to evolve. According to a recent BankTech article, for example, banks may opt to provide check deposits via mobile, with branches becoming solely sales and information centers.

According to Thomet, speaking about the additiv Advisor solution, “the gadget is not replacing client advisors, but rather offers an extension of their toolset, giving a new way of interacting with clients more effectively and efficiently.” In this way, branches and bank employees may begin to place more emphasis on shoring up existing customer relationships and securing new clients, with more standardized services maintained via digital channels.

*Not Just Surviving — Thriving *

For banks, developing new channels and ensuring integration among them is not only a necessity for survival in the digital era, but it can also boost their bottom line. This is particularly important in a space where changing regulations and increasing competition are putting pressure on banks to reduce transaction costs – with an adverse effect on profitability (CapGemini report, page 5).

According to NASDAQ, mobile banking can add USD $1.5 billion to the collective bottom line for banks. New services such as mobile check deposits can both cut costs and add value for consumers – serving as a new source of revenue (American Banker). If they choose not to adapt to the digital world, banks can still find ways to stay afloat, such as becoming a wholesale provider of banking services or seeking new partnerships. However, remaining a player in the retail banking space will require not only offering services via new channels, but making sure they put the customer first.

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