Digital transformation: reinventing retail banking (1)

The retail banking market is being completely reconfigured . New players are entering the market and new expectations are awaited. Hence, retail banks need to change the way they operate in order to adapt to this transforming market, and maintain their ability to grow. Digital transformation is at the core of this challenge, let us see why, how, and where all this will lead. This is the first instalment in a series of blog posts in which I will be tackling digital transformation in the banking sector. In this piece I will emphasise the importance of the fine-tuning of the banking customer experience and business model changes. The aspects linked to the back-office, the impact on jobs, and the internal processes will serve as subjects for future posts.
The impact of digital on banks and their clients
With regards to the banking sector, digital is considered a path of natural evolution rather than a path of revolution. This is due to the fact that information systems have already played a strategic role in the dematerialisation of banking processes for a long time. Nevertheless, retail banks must enrol in this large digital transformation process, to readjust to the new characteristics of the market. Such changes are happening in four areas:

  • Customer experience optimisation
  • Shift in operational processes
  • Change in internal processes
  • Reshaping of business models

The current model of retail banking is based on a physical network of branches offering a complete panel of banking services. This model is outdated because both of its cost and the lack of customer satisfaction it produces. Although the resizing retail networks could help reduce operating costs, this would not be sufficient for financial institutions to better comply with new market conditions.

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Consumers’ new expectations
Let’s start with the indirect impact of digital. Connected daily on at least one social network platform from a mobile phone, consumers have new expectations; more interaction and a seamless relationship to start with, as well as an easier, simpler access to bank services, not to mention ease of use. Consumers are increasingly reaching higher levels of digital integration from a personal point of view, and this leads to more demands which banks, just like other brands, need to address.
Branches opening hours are often incompatible with their clients’ working hours. Access to banking services and to personal requests via a financial advisor are perceived as unbelievably and unnecessarily complex by consumers in this day and age.  In the 1990s, banks did design new ways of addressing such requirements: call centres offered an opportunity of expanding working hours. However, in a world where everything is accessible 24/7, this is no longer sufficient in the eyes of today’s customers of the banking sector.
Simple services, a really complex task
Simplifying services is yet another challenge to overcome. An American study on the emotional and the economic value of simplicity (Siegel, Gale, 2010, Global Brand Simplicity Index) completed on 6,000 consumers in Europe, North America, Asia and Middle East, revealed that banks and insurance companies are ranked as being the least ‘simple’ brands. They are even considered ‘complex’ and ‘opaque’.
The combination of two factors, permanent access and simplicity, should bring banks to rethink their distribution model using users’ experience. Hence one of the issues regarding digital transformation is the shift from a multichannel – the proliferation of access channels operating in silos – to an omnichannel strategy, based on the continuity of the bank’s relationship with its client, regardless of the channel, the place, or hour of use.
Beyond banking
The nature of bank/client interactions needs to be reconsidered as well. The growth of digital in consumers’ daily lives leads to an important disintermediation factor. This phenomenon started in the tourism and travel sector, before spreading to a larger number of verticals. When it comes to online digital access, consumers would rather manage day-to-day banking transactions with little or no added value, such as balance inquiries, money transfers, cheques or cash deposits, all by themselves.
With omnichannel in mind, the preferred vehicles for carrying out such transactions are personal computers, mobile phones or ATMs. All these means are preferred to contacting support via a call centre. In the USA, the cheque deposit process via mobile phones, barely a year after its launch by USAA, has been adopted very broadly by the population as it only requires a photo and an app to be completed.
Reinventing one’s client relationships or bringing real added value to its clients isn’t that easy. As a results, banks are threatened by new entrants: telecom operators, information and the inevitable GAFA (Google, Apple, Facebook, Amazon and one should not rule out Microsoft) and a flurry of innovative start-ups. To thwart this disintermediation phenomenon, they need to provide their clients with personalised advice and services that have high added value, regardless of the channel they use. That being said, banks also need to drop their product-centred approach, and replace it by a ‘customer centric’ approach, and adapt to the new standards of digital use as well.
Three innovative models for digital transformation in the banking sector
In a 2016 banking study, Accenture laid out three models allowing banks to differentiate themselves and reach growth. According to Accenture, these models should help banks double their annual revenue growth – going from 4% to 8% on average in developed markets – while reducing service costs by 20% or more.
The new generation of multi-channel banking
This model relies on a consolidation of the interactions in an omnichannel approach, in order to create a stronger relationship with clients and respond effectively to their needs. This model relies on the use of analytical marketing techniques. It focuses on the personalisation of the bank/client relationship, and the eradication of organisational silos to shift from a multichannel to an omnichannel approach.
The new generation of multichanneled banks – source: Accenture
The new generation of multichanneled banks – source: Accenture
Proactive banking through social media
This model enables the bank to get closer to clients, wherever they are, through social media. Client interactions and support issues are therefore transferred to the bank’s consumers’ preferred media. The bank is therefore able to understand their requirements in a much better way and focus on their demands (or those of the community). On top of that, relationships turn into dialogue mode and social media makes it possible to engage in a co-creation process and make the most of grassroots recommendations via influencers.
digital transformation banking
The bank at the core of the digital ecosystem
This model focuses on the power of mobile technology. The bank, being the privileged and trusted advisor of its clients, is therefore at the core of a solution-orientated sales ecosystem (be it about financial services or not), and it is able to offer secure mobile payment services.
The bank at the heart of the numerical ecosystem – Source: Accenture
The bank at the heart of the numerical ecosystem – Source: Accenture