What if Banks Go the Way of the Neighborhood Grocer?

  • Guillaume Kendall, Director of DLT and Fintech at SoftServe

  • 04.04.2018 07:30 am
  • undisclosed

To many in the banking industry, the short-term landscape is colored ominous and opportunistic in equal proportions. Some will see the end of banking as we know it. Others foresee the transformation of the financial services industry. 

It is likely that both visions are accurate, to some degree. 

Changes in the market 

Some of the new market entrants gaining momentum pose an existential risk to established players. The disintermediation of banks and the emergence of new payment systems and virtual currencies promise to revolutionize the financial services ecosystem from end to end. 

A mere catalogue of impending technological and regulatory changes is enough to shake the complacency of any thinking banker. Financial services are now being provided by new market entrants—not just challenger banks but lenders, financial managers, and money management apps. 

Bitcoin, blockchain, and distributed ledger technology (DLT) have already demonstrated the potential to upend long-established payment service patterns. So-called “robo” advisory services continue to be a huge growth area. According to Business Insider, 60% of high net-worth individuals are projected to invest 20% of their assets in robo advisors by 2020, equating approximately $6.4 trillion. 

Add in the regulatory revolution being driven in Europe by the GDPR (General Data Protection Regulation) and PSD2 (the revised Payment Services Directive), which are set to accelerate digital disruption by driving banks to choose whether they intend to become a banking “utility,” or an “everyday bank” playing a central role in customers’ daily lives.

Changes in consumer attitudes

All these changes come on top of well-recognized trends in consumer sentiment. US and UK consumers appear ready to rate tech companies such as PayPal and Amazon equal to banks as agents for their money, and would consider buying financial products from technology companies they currently use. Amazon alone has supplied $3 billion to venders on its marketplace platform since 2012, when it launched a lending pilot.

Many customers prefer digital channels to branch channels, but feel that the current digital service by banks falls far short of expectations. In most countries, banks have far to go in shifting to digital channels. For example, the number of customers prepared to use voice assistants for banking could grow sharply, but that technology is being driven by tech players rather than by banks.

Digital is beyond debate 

Attempting to predict how these multiple forces play out is a useless exercise. But regardless of how innovations are going to disrupt the banking marketplace, or which technologies or currencies will dominate, this much is beyond discussion: the digital customer experience will be at the center of any and every banking relationship going forward.

The emergence of artificial intelligence and machine learning technology presents a very exciting opportunity to automate customized experiences and provide valuable insights for customers. The question to answer is how to turn decades of technical debt into an advantage for the future.

Which is why financial institutions are looking to understand their customers better. They are looking to offer customers the best service possible through faster, frictionless tools and customized options that don’t require gratuitous actions - by remaining paperless and actionable within the confines of a phone screen. As customers get used to intuitive, seamless, and secure experiences from tech giants, banks are being challenged to deliver compelling customer experiences that meet increasingly sophisticated expectations. Challenger banks are adopting this with AI-driven chatbots that interact with customers, address their queries, and help with financial transactions.

Using digital to drive customer engagement

Putting digital at the center of the banking relationship requires facing up to some uncomfortable questions:

  • If my customers and my competitors are evolving faster than I am to capture market share, how do I catch up? 
  • Does my financial enterprise have the digital expertise to drive better, deeper customer engagement? 
  • Now that I have my data in one place, how can I leverage it to get greater insights into my customers, keep them, and attract new ones? 

But does your team know how to leverage your data to deliver exceptional experiences? How will you design a personalized experience for your customers?

Providing customers with personalized interactions allows you to utilize existing data to increase sales, uncover new business opportunities based on the current operational model; and understand what other vendors and start-ups are doing in your market so that you can partner with them rather than compete against them. 

New digital technologies are not only disrupting traditional sources of competitiveness, but are raising the bar on what’s possible and setting new benchmarks for cost reduction. Cloud-based services and the “everything-as-a-service” model can redefine how investment banks approach operating models and IT systems. But do traditional banks have the in-house skills needed? Where is the design thinking, experience design, business process modeling, iteration, and lean thinking? 

Using digital to drive enterprise transformation

That said, digital banking should not stop with customer engagement. Ultimately, the digital agenda needs to drive enterprise transformation. Is your technical debt costing you more than you realize? What impact does maintaining the old have on buildingthe new?

Most banks need to reduce the overhead of IT to run the business more effectively, including:

  • Increasing operational performance 
  • Mitigating risk of technological debt of legacy systems 
  • Redesigning internal legacy systems and internal legacy software development processes 
  • Partnering with software development experts 
  • Gaining access to best practices and deep technology competence 
  • Embracing and implementing an agile approach for an internal software development lifecycle 

The new, emerging digital ecosystem offers many opportunities to help reduce costs and generate new revenues—but this requires a strategic approach to technology investments. Specifically, companies should focus on: 

  • Fintech partnerships to supplement their offerings and increase efficiency 
  • Big Data and predictive analytics to enable greater customer insight and responsiveness 
  • Artificial intelligence to automate complex tasks that involve non-structured data and require learning algorithms 
  • Distributed ledger technology to deliver efficiency in areas such as cross-border payments, liquidity management, collateral management, syndicated loans, trade finance and securities settlements 

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