July 5, 2016

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Re-envisioning the Future of Digital Banking: A Hybrid Approach

Every banking institution today is striving to answer this question: Are we doing enough for our customers? Consider new entrants (like Fidor Bank, Atom Bank) who extend specific banking service offerings, targeted towards a very specific consumer demographic. International Personal Finance (IPF) is one such organization, which is focusing on enhancing the value to their clients through a digital lending platform. IPF has had considerable success with the launch of "Hapipozyczk"— their digital lending platform. When it comes to the financial services industry, we are entering into an unchartered territory.

Recently, I had the privilege of participating in a roundtable conference on the ‘Future of digital banking’. The diversity of participants (executives from retail banks, lending institutions, large global investment banks, and global payment providers) made it an engrossing and thought-provoking experience.

Here are few of the themes that emerged from the discussion:

  1. Customer Experience:

    Whether it is a consumer bank, a lending institution, or a large investment bank, one theme that clearly emerged out of the round table was 'customer experience'. There is certainly an increased focus across financial services organizations towards building products and services that meet customer needs, and becoming more customer-centric in their operational strategy.

    As digital technology extends into every aspect of our lives, the boundaries between established industries are becoming increasingly blurred. The convergence of the retail and the financial services sectors is one such example. Financial service organizations are being forced to innovate their customer experience to match the standards of retail.

    While there is an increasing trend of customers using digital channels for banking and insurance, there are certain situations in which a customer would like to speak to someone over a phone or at meet at the branch. If the person at the other end of the phone is unable to empathize and provide a solution to the customer concerned, it leaves a bad impression. Customers dislike being transferred from department to department in search of a solution. One of the main reasons for customers breaking away from a bank is poor customer service and customer experience. Financial institutions need to re-structure their customer experience strategy. They need to consider all channels and not limit themselves to the digital.

    Therefore, the solution to broken service-delivery chains isn’t to entirely replace touch point management. Instead, companies need to incorporate customer journeys into their operating models. Banks must leverage the ‘customer insight’ and map out ‘customer journeys’ that are applicable in the modern digital world. Products and services must be created using an insight driven, user-centric design approach to ensure value on consumption.

    As Steve Jobs once said, "You have to start with the customer experience and work backwards to the technology". Engaging with customers in a way that is compelling, relevant and simple is extremely important, but does not always mean reinventing the wheel.

  2. Legacy Modernization:

    Many of the participants felt that legacy applications and infrastructure is holding them back. They are aware of the need to move fast, in order to avoid being further disrupted by FinTech companies and challenger banks.

    Most of the legacy systems are unable to keep up with ever-increasing demands, particularly when it comes to huge amounts of transaction and data. Many CIO's have Legacy application modernization as part of their agenda, and most incumbent financial institutions either have a cloud strategy or are working towards one. There is also a drive towards the development of fit-for-purpose applications which can decommission some of the large monolithic legacy applications that have been in existence for more than 15-20 years.

    An application portfolio optimization approach can help shape up the plan for migration into modern infrastructure and cloud. With technology evolving faster than ever, there is an increasing shift towards ‘build for change’ from ‘build to last’. This is important, as neither large banks nor challenger banks can afford to pile up legacy infrastructure and go ultimately through the high-capital changes that some of the large banks are currently facing.

  3. Usage of the term ‘Advisory’:

    Robo-advisors are on the rise! More and more people are getting comfortable using the digital channel to invest. Companies such as Wealthfront, Betterment and Nutmeg have captured the mass market by taking their robo-advisor platforms to the common man who wants to make small-scale investments. Moreover, customers do not want to pay a large fee for advisory services from large financial institutions.

    A large percentage of the population does not trust financial institutions. They are keen to manage their investments independently. Such people are well served by robo-advisors as using the robo-advisor platform, a customer can invest and self-manage his/her portfolio.

    There is a lack of trust and reluctance towards the advisory services offered by large financial institutions. Banks should take a closer look at their advisory services and challenge the use of word ‘advisory’. With the increase in adoption of robe-advisory tools, should the bank really be investing in hundreds and hundreds of investment advisors? Some banks are offering a hybrid model: a robo-advisor platform for customers to invest and self-manage their portfolio, and an on-call function that will be available to the customers to discuss or clarify anything specific.

  4. Rise of Robots:

    In order to attract and retain clients, banks are focusing a lot of attention on improving the customer experience at the front-end. Their goal is to derive a single view of the customer and their transaction history, to ensure that the customer’s interactions with the bank are satisfactory regardless of the channel. However, back-end operations still require a lot of human support, despite not being a revenue-generating function. There is obviously room for improvement, especially considering that back-office tasks do not require direct interaction and can be performed more efficiently and effectively off-site or by robots.

    We will soon witness a big wave of robotic process automation (RPA) in banking services and operations. Today, a large cost element for banks is their operations. Most of the large global banks have their operations team spread across the globe to optimize this cost. RPA is the only way forward.

    Recently, Hilton hotel announced the introduction of a robot concierge at the hotel reception, which uses IBM Watson technology to learn and interact with the customers. Last year, Bank of Tokyo-Mitsubishi UFJ took a first step toward employing ‘non-human’ staff, with the introduction of a customer service humanoid robot ‘Nao’ at its flagship Tokyo outlet. Mitsubishi UFJ believes Nao is expected to handle the trickiest of customers, and should be fully operational by 2020, when Tokyo experiences a huge influx of overseas visitors for the Olympics.