Unbundling Financial Services for the Digital Generation | HCL Technologies

Unbundling Financial Services for the Digital Generation

Unbundling Financial Services for the Digital Generation
June 28, 2018

From passive digital consumers to active fintech adopters, millennials are truly transforming the way financial management and banking work. What is their hallmark? Speed, Efficiency, and Automation (SEA). They are capable of carrying out almost all transactions and conduct financial management without a bank.

According to a study, “By 2020, consumers will need banking services, but they may not turn to a bank to get them.”

Consider the case of Mr. Ben, a 30-year-old millennial marketing executive, who starts his day as early as 7am and works till it is 9pm. His busy schedule makes it impossible for him to visit his bank for financial management. So, he bypasses the bank and conveniently switches to alternate payment providers like PayPal for P2P payments or credit card payments, Amazon for shopping, financial management apps like Fudget and Goodbudget or robo-advisors like Mint for day-to-day risk advisory and wealth management. He even indulges in social gaming and plays fantasy football or online poker without needing a bank for financial services.

Not to forget, Mr. Ben is just a part of the 28% European millennial population that is slowly drifting away from traditional banks for financial services. Millennials demand a personalized and customized financial services on the go and at the touch of a button. Gen Y’s digital banking needs, behavior, and preferences vary distinctively from those of the previous generations. They do not like to queue up at branches, do not write checks, and do not prefer too many escalations for resolving their concerns.

Mobility is key to their needs. But are FIs innovating enough to provide millennial-friendly digital banking solutions?

FI’s reluctance to innovate on digital banking not only affects transaction-based fee collections but also erodes a customer’s attention from its key service offerings, ultimately leading to higher attrition or skepticism to use banking channels.

 “Millennials are the torchbearer of digital banking and feel content, secure, and enriched using mobile devices to make online payments.”

With the advent of technology challengers such as GAFA (Google, Apple, Facebook, and Amazon) and Alibaba, among others, becoming popular with this section of the population, the need to develop millennial-friendly digital transformation technology is becoming increasingly important.

I shop on Amazon and it recommends products based on my previous purchases, Google displays ads and content pages based on my browsing history, but it surprises me when my ATM doesn’t remember my preferred language, or when my bank fails to alert me on my spending cap. Per reports, European banks lag in creating future value when compared to GAFA companies. Due to a slower pace of digital transformation, the future growth value of banks has decreased by 11% in 2017 from 20%. Future value accounts for 49% of the total value of GAFA companies. All these companies with their broad customer millennial bases, push for digital transformation, and tech-driven insights on their behavior and preferences are gaining sizeable share in the banking value chain by offering digitally innovative solutions such as loans, reward programs, and prepaid cards to further limit a customer’s engagement with the bank or FI and vice versa.

“Platform banking on the go with the ease of single-touch transactions will define the next-gen FIs.”

The present banking system needs a digital transformation; it must follow a pragmatic approach and extend the entire gamut of financial services under one umbrella if it aspires to win loyal millennial customer accounts. The inability to provide a unified platform for payments and communication through digital technology would hamper a bank’s long-term profitability and would lead to higher customer attrition. Banks enjoy access to vast amount of customer data right from spending patterns to credit, and can easily turn this data into meaningful insights for its customer’s financial management using digital technology.  This section of the population truly represents lucrative opportunities for the banking system to explore.

FIs and the banking system must focus on leveraging and optimizing the use of digital tools and digital solutions such as artificial intelligence and automation to drive the customer’s financial journey and guide transactions. Per EBF (European Banking Federation), digitalization is a key step for banks to increase their competitiveness, with 90% of banks considering it to be a priority. By 2018, Western European banks are expected to generate over half of new revenue via digital sales. The comfort of a personal interaction is meaningful and gratifying but in the era when time is of essence and delivery service is mapped on parameters of promptness, convenience, security, and accuracy, the importance of digital care cannot be ignored. We can still spot a millennial without a functional bank account, credit card, or an insurance policy.

Banks are gradually losing their monopoly in the traditional banking space to nonbanks and tech challengers. A clear approach to consolidating its position is to rapidly accept, upgrade, and adapt to technological advancement through an innovative mix of collaboration, incubation, and experimentation. Coalition individually or through incubators with fintechs can prove conducive to the digital progress of the sector. Such collaboration would help banks to leverage the technology expertise of fintech companies and synergize their offerings to provide an integrated service via unified platform while retaining and maximizing gains for the digital generation.

How will this work? Let us picture Mr. Ben again. He starts his day as early as 7am and works until it’s 9pm. At the start of his day, the unified bank app on his mobile pops up a reminder to pay for his insurance and mortgage. It even instructs him on the balance on his credit cards and checking accounts, so that he can choose the payment source.  The analytical wealth manager constantly tracks the status of his ongoing investments, posts updates on market performance, and makes a personalized recommendation on new investments. This helps Mr. Ben to send a gift voucher to Mr. Lee as a birthday gift at the touch of a button. All this and much more with banking at Mr. Ben’s beck and call. He doesn’t need alternate channels anymore!