September 1, 2015

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The Future of Retail Banking

The stimulus for change

Post crisis, the buying pattern of a banking consumer has changed. There is a growing affinity towards simpler retail banking products, greater functionality, transparency and convenience. So much so, that the consumer is willing to change the service provider for better quality service and efficient self-serving channels. With last trends being increasing investment in financial technology firms and surge in the number of neo banks, the expectations from retail banking are bound to increase.

With this in the foreground, retail banks struggle to thrive in an ever-changing global environment. Growth stagnates, as regulatory reforms and other restrictive laws put upward pressure on the costs and returns remain evasive. With the emergence of new retail banking models and economics, banks need to evaluate various strategic cost and revenue options that are centred on the consumer.

Evaluating Strategic Cost and Revenue Options

The growing divide between the digitally astute consumers (who want products that cater to their preferences and behaviour), and the digital deniers (who still depend on traditional ways of banking), is forcing the banks to address demands of both segments separately. Keeping this in mind, banks need to strategize solutions that utilize analytics, existing customer data and the history of customer interactions to create demographic/device-specific relevant value propositions.

The appropriate strategic cost and revenue options that banks can choose from for this purpose are:

  • Integrating distribution channels: Although, it is critical that banks adopt a more focused approach to crafting value propositions, if not delivered to the customer at their next point of interaction, these offerings will not be effective. Hence seamless integration of the distribution channels is of utmost importance.
  • Network Redesigning:The model of retail banking needs to change, from one where the branch is at the centre of retail operations to one where the branch will co-exist as an equal with the other channels.
  • Technology enablement for taking advantage of user insights:Technology can now be perceived as an enabler of rich customer experience (using data analytics) rather than an agent of increasing costs.

Although, these options are indispensable to the objective of providing relevant product offerings, but banks need to prioritize channel integration first. Since without this, banks won’t be able to derive optimum business value from rest of the initiatives mentioned above.

The Channels of the Future: Integrated not Interfaced

Direct channels are a strategic cost and revenue option but only if they themselves are pre-integrated, otherwise the cost, time and complexity of getting new products and service to market will prove uneconomic. For example, since mobile is being used for two-factor authentication in Internet banking and for card-less access at ATMs, it needs to be pre-integrated into every channel (Internet, ATM and Card management in this case), and be capable of providing services across multiple devices and platforms.

The channels need to be integrated and not interfaced. Interfacing is only able to facilitate a stand-alone transaction or event and is prone to performance bottlenecks, whereas, integration aims at providing seamless transition from one channel to another.

It is the multichannel disposition of consumers that needs to be tapped. The proliferation of available channels enables the consumer to commence a transaction on one channel and terminate the same on another. For this, banks need to breakdown the silos related to each separate channel service and provide a universal self-service platform. This enterprise-level self-service platform would be one channel, one transaction and service / product repository, servicing all devices.

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Supported by Kriti Arora