How digital disruption is changing the face of banking

By Shree Sule, Lead Consultant, Altimetrik

Every now and then we hear of the numerous technological disruptions, the ones that are challenging the traditional technology model – that make people pay attention. Be it Apple that made us think there is more to a mobile than just answering and making calls, T20 causing a major shift of balance in cricket or our movement from using physical money to plastic and now to digital currencies.

Disruptive technologies are continue to challenge the traditional banking model – It comes as no surprise that banking is a competitive industry but the ‘form’ of that industry’s competition is changing. Taking all this into consideration why should the biggest industry in the financial services ecosystem –

Banking, stay behind?

If we look back, the effects of the 2008 financial meltdown had severely damaged the image of banking. Between 2009 and 2012 approximately 3000 bank branches closed in the US alone. Between 2008 and now, many customers started using their mobile phone for their day to day activities like connecting socially, getting feedback, getting to know the professional and personal details of their contacts, or even making purchases and buying services.

This has made the customers believe strongly in the digital channel and provided him/her the confidence of self-control and the novelty of choice over that of was offered by the retailer. Customers are now more comfortable with sharing data over the digital platform as they understand the data shared is used for their benefit resulting in recommending these services to their connected social network.

Banks across the globe, now estimate that their growth will be driven by:
* Focusing on the millennial population
* Meeting demands for mobile-centric products and services
* Engaging with disruptive and new (FinTech) entrants in financial services
*  Proving comprehensive services backed by secured systems across devices and channels
*  Increased focus and commitment towards – Information visualization, well rounded and immersive customer experience and higher interoperability
*  Unifying the experience that comes with multi-platform and multi-channel financial technology – Unified Payments Interphase (UPI), being one of the most recent examples.

While the most common transactional activities carried out online are bill-payments, viewing transaction history and money transfer, recent figures produced by ICICI bank state that approximately 60% of the bank’s total transactions (under the Savings accounts) are now undertaken through new-age digital channels. And only 10%, by way of traditional branch-based banking. With digital channels reducing costs, the average Bank’s cost-to-income ratio has also improved by reducing from 28.2% to 36.8%.

Banking model of the future

The banking model of the future can therefore be broken down into 3 segments:
1. Intelligent multichannel bank: A channel that segregates the customer by analyzing them in real time, product offering based on customer needs and expectations proposed on real time basis when needed

2. Socially engaging bank: This would be a channel that uses social media, to increase customer base and record their interest and likes and dislikes

3. The digital ecosystem: Here, an enterprise becomes the hub for financial and non-financial ecosystem. It can be used to track customer behavior on daily basis patterns like usage and stuff and can offer loyalty program on the basis of the use in real time.

Now imagine all of the above replicated in a banking environment, while the customer journey through a digital channel! A customer empowered with a personalized view of his banking page with interactive snapshots of finances backed by clean graphics or heat maps. When coupled with Artificial Intelligence (AI), these services can further be evolved with robot-advisory to enable offerings like – Individual liquidity indices, personalized calendars to schedule and plan spending that is derived from behavior tracking or customer preferences.

Bank’s high level categorization has charted a way to use customer data in an intelligent and efficient manner to deliver both revenue growth and improved customer experience in the process. Highly personalized and contextual offerings are what customers are after – and to experience such privileges, they will soon be open to exchanging personal data. This roadmap will be successful only when customers experience how it can generate real value like loyalty based offers on the last transactions carried out, personalized marketing messages and location based marketing, eventually achieving the target revenue growth and creating a customer friendly experiences.

According to a Google-BCG report, Digital Payments alone in India are expected to witness a 10-fold growth equaling $500 billion in total value whilst contributing 15% to the country’s GDP! Therefore, if this digital disruption is channeled correctly, it could accelerate traditional banking’s transformation; enabling banks to stay ahead of the completion across industry and technology.

bankingBFSIDigital bankingdigital transformation
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