By Manoj Mistry, Managing Director of international banking network IBOS Association
Retail banking has always been focused on two key factors: the customer journey and the user experience. Traditionally, these were delivered through a network of bank branches and via personal relationships developed over time with managers and staff in a designated branch. This has now changed to such an extent that face-to-face retail banking is already becoming a thing of the past. Even where physical branches still exist in significant numbers, their demise seems all but inevitable.
Still in its infancy, this revolution in digital transformation has occurred in parallel with, and because of, technology. The advent of digital banking and the transformation it has brought is arguably the most profound and significant game changer for the business of banking since Gutenberg and Caxton brought the printing press to market and illuminated manuscripts were consigned to history.
So why is banking going digital? The answer can be summarised in one word: demand. Compared to the traditional retail bank offering, digital banking is always quicker and often cheaper, as well as being universally accessible to individual customers, 24/7, wherever they are based and without the need to queue. In practical terms, it has led to a significant reduction in the paper trail of documents which has been increasingly superseded by digital records which are viewable online. In turn, the modern user journey for new customers feels rather less like stepping into a bricks and mortar bank, and rather more like logging onto Amazon.
As technology develops, an ever more sophisticated range of digital banking services is now available to bank customers. In turn, this is continuously reshaping customer attitudes and expectations of what a bank can and should provide. As a result, they feel more empowered and more entitled; they are demanding an easy and seamless fully customised service; and they expect banking to feel more like every other online service that they use.
In their response, banks need to continue innovating and delivering in order to meet this growing set of customer demands and expectations. Meanwhile, the advent of open banking has already led to banks releasing their data in a secure, standardised form, so that it can be shared more easily between authorised organisations online.
Fuelled by continuous innovation, digital technology is creating unique customer experiences in online banking, as a wealth of new products and services are created to target customers’ specific needs. As their expectations continue to evolve, so does the digital bank offering. Digital innovation in the customer offering is increasingly driven by cutting-edge technology, such as artificial intelligence (AI), blockchain, crowdfunding and cloud computing.
Fintech firms, which continue to grow in size and reach, are helping to drive faster change within the banking sector. Most notably, challenger banks have manifestly been quicker and nimbler in adapting their range of services to meet customer demand, delivering the right change at the right time.
For traditional banks, keeping up with customer demand is imperative. In order to do so, they need to emulate the challengers’ strategy: devoting sufficient time and resources into evaluating exactly what customers now want and expect from their provider. In addition to expanding their own range of digital services, they are also looking to acquire digital challenger banks to give them a stake in this growing sub-sector.
Traditional banks are also emulating fintech challengers by enhancing the overall customer experience in their digital offering. The best-known challenger brands, such as Monzo, Revolut and Starling, understand their customers – primarily millennials who expect instant online service. They crave simplicity and ease, as with everything else that they experience via their smartphones. By making their services entirely digital, challenger banks understand their preferences and adapt accordingly to tailor their offering of complementary products and services.
Digital banking not only means meeting current customer expectations, but anticipating new ones as technology advances. That means leveraging data insights and offering a better-personalised experience along with a fully digital experience – offering customers what they want and then adding some more.
Traditional banks are also fighting a digital battle on other fronts. As they compete less with other traditional banks, they are fighting more often with new, finance-related apps that make traditional banking apps appear dated and rigid. In response Banking as a Service (BaaS) has evolved – a model through which licensed banks integrate their digital banking services directly into the products of other non-bank businesses. This allows non-bank businesses, such as airlines, to offer their customers digital banking services – mobile bank accounts, debit cards, loans and payment services – without needing to acquire their own banking licence.
As banks reconfigure and revise their business model to accommodate and adjust to the needs of digital transformation, the pace of change will continue apace. It is likely that by the end of this decade the world of retail banking will have changed much further still as traditional banks fully embrace the digital model. Their customers will demand it.