Digitalization is not just here to stay, but the only way forward in any industry. Clearly then, banks cannot afford to be content with old-world ways of doing business that only serve to push them towards a not-so-favourable state as Digital Darwinism unfolds, especially in an industry under constant disruption from non-traditional players. Let us examine the four key essentials for banks to not only evade the predicament but emerge winners.
The pace of change of technologies in the digital world is so rapid, that banks no longer have the luxury of waiting it out till a technology matures to solicit help from technology specialists and introduce new technologies in business.
In the non-digital world, pain points in operations were tactically addressed from time to time with technology based reactive measures. In a digital environment this is not an option since it simply translates to a head start and lead for the competition that can claim valuable market share difficult to recapture at a later stage. Instead of waiting for a host of pain points to surface before taking the digital plunge, banks should make a big decision to partner with technology companies operating in the banking space, early on. Technology companies can periodically impart digital product education to the bank management and staff and prepare them for the change ahead.
A second step for banks could be to invest in pilot projects as part of partnering the technology companies’ evolving products. This allows both the technology company and the partner bank to share each other’s prospects. It also makes the bank privy to cutting edge digital products and services that outwit competition.
In the digital age, cost, speed, ease and seamlessness of operations matter most to banks and their customers. To differentiate the products and services from competitors’ products and to keep pace with the advancement in technology, banks need to leverage analytics to gather useful insights. This could include discerning minute data patterns based on customer demography, geography, network usage, devices, products and types of apps used, customer satisfaction and many other parameters of relevance. Since analytics affords perspectives from just about any angle as long as data is made available, banks must invest in training and retraining staff at all levels to become a truly data-driven organization.
Banks need to work out an approach to arrive at a quantitative framework to monitor digitalization. A four-step process – Plan, Deploy, Measure and Improve – could be adopted to continually monitor digitalization. The Planning step involves building a roadmap for the short term, medium term and long term digital strategies for the bank. The plan must be duly base-lined after approval from the board and top management. Deployment consists of deploying a tool to measure the digitalization quotient and the tool’s parameters should be attributed to customer satisfaction elements and operational markers like cost, investment etc. Measure relates to measuring and recording the parameters on a database through both manual and automated means. The Improve step refers to learning by analysing the data from the previous step and then instituting organizational steps regularly.
Digital services present unprecedented opportunities for banks to automate operations in myriad ways. The very nature of digital technologies lends themselves to automation. For example, an e-wallet that stores all the customer data on the client or server side. It is a definitive shift towards improving customer experience. Blockchain technology which is set to revolutionize digital transactions, is another case in point.
Banks should look at the entire chain of operations and identify repetitive and mundane tasks which are currently handled manually. Breaking this process down to smaller chunks and then exploring automation options with technology partners is a sound proposition. For example, processes such as opening of savings account once a customer is on-boarded, processing of files uploaded for payments transactions after relevant validation, and account closure activity for zero balance accounts can be automated.
As a result, a bank can reduce manpower costs significantly, and redeploy human capital to more worthiwhile pursuits.
Banks tend to follow a reactive model of technology adoption, waiting for a technology to mature before jumping in. In times of intense digitalization, this may not always help. The banks’ business models may need an overhaul to facilitate early stage strategic investments in emerging technologies in collaboration with technology companies. Money saved through automation can be reinvested in these strategic investments. Innovation may be crowdsourced with customers. For example, instead of making investments to enhance the features of an existing product, the bank can innovate and come up with a new product offering to suit the customer and market demands.
In general, identifying slack and inefficiencies, and pooling resources for innovation should be an ongoing process. This is closely tied to the previously mentioned strategies of becoming a data driven organization and adopting automation.
Digitalization has spawned disruptive ways and means of accessing banking services and calls for radically altering banks’ perspectives and priorities on the conduct of business. The future of the bank is digital and perhaps digital alone, and that means banks committed to technology will survive competition and outlast their competition in the distant and near future.
Digitalization also means banks increasingly need to mirror the underlying technologies in their outlook, plans and operations and hence a strategy of close cooperation with technology companies can prove highly beneficial.