Digital Transformation has changed the banking industry and shows no signs of abating. Chances are high that anyone we meet has at least interacted with digital finance products in one form or another. FinTech products such as payment apps and virtual credit score advisors are largely ubiquitous due to their usefulness. In essence, if there is a financial need then there is a digital service for it.
However, it would be incorrect to assume that the development of disruptive financial products has happened in isolation or just arbitrarily. Leaders and institutions have invested a considerable amount of money and effort to push this field into an ever-increasing expanse. As we delve deeper, it would become apparent that this effort is calculated, strategised, and carefully executed. The four pillars of digital transformation shown below provide insight into how the banking sector is being shaped anew.
Pillars of Digital Transformation
Traditional business models state that customers value only end-product. However, due to an increased understanding of their needs, it has become pretty evident that customers also value service delivery. For example, the generational gap has forced companies to reconsider how they conduct their client interactions for services. An example of this would be, say, approving a mortgage. To be more specific, it involves changing methods of delivery and tailoring them according to the tastes and preferences of different groups.
In essence, the above point says that empathizing with customers is important to understand them. As a direct example, Capital One has transformed its branches into café lounges in the US. There, customers can visit, relax, and receive advice from financial experts. This adaptation was the outcome of grasping the millennial lifestyle and choices. They prefer to do most of their activities on their smartphones and dislike physical branches. The solution, thus, must improve experience at these branches and provide a more holistic environment.
In the online realm, banks have transferred control over the product experience to their users. Customers can now pick and choose what they want. Also, by tracking their satisfaction levels banks can make themselves more efficient. Thus, customized products from diverse portfolios now closely monitor satisfaction levels.
Innovation Lifestyle Management
The fight for space on customers’ phones is the digital equivalent of the share of wallet idea. The belief that drives it is that the success of an app is rooted in its usage. Thus, the idea here is to deliver innovative services that integrate seamlessly into the customer’s life. If we look closely, we find two determining factors. These are:
- Indispensable – A lot of factors work in sync to make a product indispensable. Here, the strength of the back-end is just as important as the front end. We can look at Venmo and Zelle to help elucidate this point. Venmo is an innovative startup that was first on the scene. It captured a tidy chunk of the market with its easy to use payment app.
Zelle, however, is very different. Giants such as BoA, BB&T, JPMC, Capital One, Wells Fargo, US Bank, and PNC Bank are its sponsors. Through Zelle, they have done away with the middleman. Thus, they have more control over addressing some of the major user concerns than small firms. This control makes them more efficient in answering problems surrounding privacy and fraud. Also, due to banking regulations, compliance of which requires banks to be accountable, leads to more oversight. As a result, there is an increase in the element of trust. All of these have resulted in more users flocking to Zelle.
- Invisibility – A service that is used routinely becomes a part of the user’s subconscious. In a way, the product skips over the step where users have to choose between competitors. Thus, it becomes akin to utility. Google Pay is one such example.
The focus is slowly shifting from being a provider of solutions to that of an enabler. Digital platforms allow third parties to come onboard and make unique offerings to their users. Here, users share their data in return for better services. Such partnership is particularly beneficial for banks as it allows them to better grasp customer needs. It also ends up making them being more competitive. Thus, satisfaction remains high and the churn rate low.
The above model is known as the open banking model, and big banks have made a note of it. Recently, JPMC launched a digital-only platform in the UK to take advantage of it. This shift has been facilitated by regulatory bodies enabling licensed startups to access limited bank data. In another example, BBVA has embraced open banking by opening up its APIs for third parties. In India, FinTech firms such as Zerodha have brought on startups and their own acquisitions to the platform.
Banks are prioritizing best ways in which they can leverage employee potential. Thus, the idea has shifted to jobs which focus on community interactions, relationship management, and digital acuity. These are in addition to processing and security checks that comprise old roles but are adapted to the digital world. Furthermore, in order foster an environment where such profiles can thrive, banks have sought to build digital workplaces.
Building Digital Workplaces
- Automating Tasks – Digitising repetitive processes that require low oversight equips employees to devote their time to high-value tasks instead. For instance, digitisation encourages employees to take on more client facing roles.
- Bridging Information to Customer Gap – Mobile banking mandates maintenance of channel consistency. And now, customers expect information to reach them on an on-demand basis. Also, fulfilling the needs of customers often requires sharing of information with third parties. Thus, the presence of employees with strong third-party relationship management skills is crucial.
- Improving Connectivity – Over time, banks have made a steady choice of moving away from a modular form of organizational structure. Modular structure divides responsibilities instead of increasing information sharing. As before, digitisation has reduced the need for inefficient frameworks.
Moreover, the nature of the market itself has changed. Reductions in Task Familiarity and Task Analyzability imply modular networks are ill-equipped to address evolving needs of the customer.
In conclusion, developing an understanding of factors driving us towards Digital Transformation has created a race between banks. The motivation to service customers better than the competitor is even more critical now. The question now remains – How are big banks going to implement solution concepts into reality?