Over the past year, banks around the world for different needs, were forced to close branches and restricted access to basic in-person services that customers had come to trust. The convulsions of the Covid-19 pandemic highlight current industry challenges.
Since customers were less likely to access their trusted local branches, they continued to flock to new Fintech products and tech offerings (think big-name tech firms that integrate financial services into their platforms). These new entrants to the market often come with the promise of a slicker or simpler customer experience - getting to know customers where they want to be, rather than forcing them to come to you. It is simple but effective and has created a golden opportunity for these companies to penetrate the customer bases of many banks.
Around the 43% of consumers They told services consultancy EY that the way they conduct their banking has changed due to COVID-19. However, these trends are simply an acceleration of what had been happening for the past decade, especially among the young and tech-savvy.
Banks are feeling the pressure. Their digital transformations have paid off during the pandemic, with financial services companies leading the market with better than expected earnings in the first two quarters of 2021. At the same time, many of the new, higher-profit services are also driving more competition. Up to half of all financial product purchases among the 56,000 consumers surveyed by Bain & Company they went to a company that was not the respondent's primary bank.
To keep these customers, banks must be able to meet customer needs in more ways and in more places. Doing so will require that these financial institutions reinvent your core utility for a new era of customer focus .
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“Trust has been the true means of exchange between society and its financial institutions for
since banks have been around, ”said Sarah Diamond, IBM's global general manager for the financial services industry, in a recent interview with Industrious.
When combined with new technology platforms like the cloud and artificial intelligence, banks' old trusted stores can give them the edge they need, provided they can leverage technology to deliver the financial products and services customers have come to expect. Supporting communities and exceeding customer expectations is an unbeatable combination.
Banks only need find the formula to provide both as well or better than its newer competitors.
In any moment, in any place
As the nexus of banking moves away from the bank and towards the customer, digital services first are becoming the primary mode of engagement.
Banks must put mobile devices ahead of the marble when it comes to creating dynamic new experiences and offering products omnichannel. They not only compete with the bank on the other side of town or across the country, but also with the latest innovations coming out of Silicon Valley.
"There is a strong desire in all banks to refocus on human interactions," said Likhit Wagle, general manager of global banking and financial markets at IBM. “The pandemic really exposed the digital divide. We will have to look for digital solutions that meet the needs of small businesses, seniors and other unbanked populations who need our services as much as anyone, or even more. "
As well as the trained buyers today's customers expect retailers to provide in-store product availability through a digital app, banking customers expect an integrated and consistent experience across channels. They want services tailored to their preferences that are accessible from anywhere.
This means that banks must think beyond the primary mission of executing secure transactions. While this remains a core utility for banks for the foreseeable future, they must also be able to leverage all customer input to improve and personalize the experience across channels.
AI to focus on the customer
It will take more than a brilliant app for banks to compete against the tech giants. Banks will have to reinvent all their information architectures at the most fundamental level.
"Banks have to fix the legacy system problem," said Jean-Philippe Desbiolles, IBM vice president of global data, cognitive and artificial intelligence for financial services. "Continued reliance on legacy systems is becoming a real problem, especially when it comes to rapidly scaling artificial intelligence and data."
Desbiolles sees three key areas in which the AI will facilitate the fastest and biggest ROI .
The first is decision support, broadly defined as intelligent systems that facilitate better decision-making throughout the organization, such as fraud detection, risk assessment, and customer solvency. The second is customer personalization, whereby artificial intelligence tools enable banks to provide a more personalized experience for each individual customer based on their preferences and financial circumstances.
Third, Desbiolles sees banks, now with more data than ever, to serve not only as transaction facilitators, but also as personal financial wellness consultants. "I think this point is very interesting," said Desbiolles, "because it is positioning the bank not only as a business partner, but also as a partner that is helping you as a client to better manage your finances."
But these innovations, Diamond emphasized, will need to be explored with care and diligence.
"Banks have to be stewards of data based on principles and high integrity, and not abusers of the data," he said, underscoring the importance of trust and transparency in artificial intelligence. “AI is primarily based on historical data with the potential to perpetuate unwanted biases. Banks will need to be extremely thoughtful about how to drive efficiency in the application of artificial intelligence tools, in order to balance customer benefits, data protection and overcoming biases. "
Opening
Similar diligence will need to be demonstrated in another trending area: open banking. This practice promises a way for banks to accelerate their digital transformation journey.
By strategically opening access to specific customer and operational data, while adhering to appropriate regulatory frameworks in every step of the way, banks can better adopt and capitalize on innovative third-party services. Secure but simple integration with those partners' applications and APIs is a crucial step.
Bharat Bhushan, IBM's CTO for banking and financial markets in Europe, has been involved with open banking since the European Banking Authority announced PSD2 , the Second Directive on Payment Services. Bhushan advocates that banks differentiate between basic and secondary services and take an incremental approach.
"In some cases, you may give up some parts of your business that are not critical," Bhushan said. “And just because you don't have that customer interaction directly in a mobile app doesn't mean it's not important in that business. It's about choosing where you want to focus.
Core competencies
The pandemic hit the banking sector hard. Fortunately, banks have something that Silicon Valley players don't: consumer confidence. Being a trusted intermediary between savers and borrowers with care and attention to all their needs has always been the heart of banking, and some prominent brands have built this trust for a century or more.
The bank's deep-seated relationships are a critical differentiator, but alone will not be enough. "The survival of individual banks may depend on new information technology architectures that provide the scalability of a technology and the agility of a fintech," said Diamond.
In other words, to beat tech companies, banks must, to some extent, become tech companies.
The pandemic showed that banks cannot afford to continue their normal activities. Banks need a clear information architecture transformation strategy that involves omnichannel engagement infused with artificial intelligence and enabled by strategic collaborations with third-party technology partners. With these goals in mind, banks can become the institutions that clients need now.
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