By Nanda Kumar
Back in the 1990s as India’s economy began taking off following the liberalization, the banking sector had responded by giving birth to a new league of private banks.
These young startup banks quickly began taking market share away from the incumbents, largely by delivering to their customers innovative products and unexpectedly high levels of customer service. In the end, it only took about a decade for these startups to dethrone the incumbents and emerge among the largest banks in India in terms of market capitalization.
Three decades later, the question is moot if we are about to witness the same cycle of creative destruction repeat itself. The leaders of today along with the legacy players face a growing threat from a new generation of innovative fintech startups, including neobanks and payment banks, who are yet again disrupting the customer expectations about banking products and services.
Once again, the customers will decide if the present incumbents end up ceding ground to the next generation of disruptive banking providers. And this presents a big question to the incumbents; do they really understand their customers as well as they believe they do? After all, the incumbents will necessarily have to embrace the methodologies of their innovative startup competitors if they are to plug the exodus of customers as well as revenues.
To be sure, India’s banking customer of 2020 is remarkably different from her counterpart of just a decade ago. A striking socio-economic transformation of India over the recent years is today characterized by the near ubiquity of smartphones; one in three Indians owns one; nationwide availability of cheap 4G connectivity and an ever-growing adoption of e-commerce and other digital transactions. Banks too have seen the dramatic shift in transactions from the physical channels – branches and ATMs – to digital, enabled by NEFT and IMPS first and increasingly UPI of late.
The ongoing pandemic has further ensured that a whole new segment of customers have had their first taste of all-digital banking, allowing them to even open a new account remotely from their smartphone. This continuous interplay of customers and technology with both transforming each other is simultaneously creating new challenges and opening new opportunities for the incumbent banks.
Redesigning Customer-centric banking
To defend successfully against their innovative startup competitors and to secure their future revenues and growth, the incumbent banks must start with putting their customers in front and centre of their innovation and transformation strategies. At the foundational level, they ought to reimagine how they can extend their value proposition beyond core offerings – the utility banking services.
In my view, the banking leaders of the future will be those who can offer and deliver a whole new level of customer engagement that is at par with or exceeding their most innovative competitors. To do so, they will need to deliver truly hyper-personalized services with enhanced transparency to their customers.
This radical transformation into customer-centricity can only happen if banks rethink their core technology, foster strong partner networks and understand the true meaning of digital transformation, all the while placing empathy and agility at the heart of their strategy to humanize the banking experience.
Transforming customer’s experience – the key to success
The incumbent banks already have an unbeatable asset in the reams of customer data available with them. This data holds the key to understanding a rapidly changing customer behaviour. An important task for the banks is to break open their organizational silos in order to gain access to end-to-end customer data, and then use advanced data analytics technologies including Artificial Intelligence and machine learning to understand what the customers want.
These insights must then form the crux of all strategic decisions made by the bank, ranging from pricing, offers, products, bundling, and even marketing outreach, engagement, and even further digital transformation of crucial touchpoints and processes. By carefully curating products and services into hyper personalized bundles, incumbent banks can ensure a rich customer experience across touchpoints that rivals their more nimble counterparts.
As a case in point, banks can model how their services are used by their customers across multiple activities and transactions – from online and offline shopping or ordering food via apps to buying health insurance – and consider expanding the scope of their services to cover these non-core transactions.
Their focus must be on building and leveraging a comprehensive ecosystem around the customer to maximize the impact of personalization. To do this they must consider strategic partnerships with other players in the customer’s ecosystem. Such value driven offers and personalized outreach will go a long way in delivering the immeasurable wow factor that today’s banking customers are looking for.
A natural progression of this comprehensive customer ecosystem is that of platform banking. This is a digital marketplace or ecosystem created and managed by the bank in association with key partners to provide comprehensive services that go beyond just banking. For example, after approving a car loan, a bank can also help customers find the right insurance plan, car servicing providers and even recommend offers and discounts at car accessories retailers –all within the app.
While platform banking is still in a nascent stage the world over and even more so in India, early efforts have demonstrated high levels of customer interest in such a holistic ecosystem. Within India, many fintech startups are already looking at opportunities to sell their technology platforms as a service directly to large- and mid-sized corporates. Incumbent banks too can tap into this trend through open banking and API-enabled innovations.
For older banks, executing their customer-centric strategies through holistic transformation of core technology may seem daunting, especially given the concerns around security, compliance, and continuity. But the right technology partner can implement a middle layer on top of their core infrastructure and enable them to build new products and services on top.
With help from a suitable partner, these banks can effectively leverage customer data to not only offer hyper personalized services and products but also work on offering a seamless digital experience across the banking ecosystem.
Nonetheless, a complete customer-centric transformation of an incumbent bank’s systems, processes and people is complex and can be both time and cost intensive. However, in an environment where digitally-native fintech startups and tech giants are already offering such an experience, this is one investment that banks must prioritize.
Customers are increasingly demanding an empowering, easy, and seamless experience from all service providers and are not hesitant to switch providers if their expectations are not met. In a market scenario characterized by increasing competition, customer retention and loyalty will ultimately determine the banking leaders of tomorrow.
(The author is Founder and CEO SunTec Business Solutions)