The Digital Reinvention in Retail Banking

Ashish M. Shaji

12 Sep, 2020

The way banking is conducted these days has gone through a sea of change, and also, the fact who conducts it is also changing. Banks have started prioritizing the creation of secure platforms and ecosystems with the use of digital technologies.

Banks have started to rethink their roles and activities by creating a structure that defines the banking future. We are looking at Digital reinvention in retail banking in this article.

What is Digital Reinvention?

Digital reinvention incorporates digital technologies like never before to create revenues and results through innovative strategies, products, and experiences. It is holistic, beginning, and ending with what customers require and how they require it.

 It employs the use of multiple digital technologies and approaches like blockchain, Internet of Things, Artificial Intelligence, among others. Digital Re-invention is not tied to any particular technology, but it is an approach that can encapsulate multiple innovative technologies.

What makes Digital reinvention essential in retail banking?

The spread of digital technologies pose a challenge for retail banks. This includes the transformation of the existing business and reinvention through the development of new business models. Mostly, banks focus on the transformation part. However, banks may not be able to survive or thrive in the future unless they pursue both at the same time.

Transformation involves the use of digital technologies to enhance the physical business model, shifting offline processes or interactions online. Banks should use the full potential of new technologies to create new services and propositions, and they require doing it along with the digital transformation.

A wave of digital start-ups has increased in financial services from just a few in recent years to thousands today, with incubators and accelerator hubs in major cities. These have put pressure on revenues that were felt by banks.  With its low-cost structure and freedom from legacy IT systems and regulatory burdens, the digital firms’ target customer needs instead of specific markets or competitors. Some digital attackers cut into profit margins of banks, and others cut into both volume and margins. As a result, large shares of retail bank revenues are at risk of migrating or disappearing by 2020.

The proliferation of digital start-ups constitutes a third wave of major banking technology innovation, which has enabled the formation of branch networks and with early mainframe computers and networks, which allowed ATMs, credit cards, and other payment mechanisms. During those prior waves, banks’ copied each other’s innovation.

Therefore traditional banks should quicken the pace of their own digital reinvention. The question for banks is not if to take a plunge but which business they should invest in and how to differentiate themselves to customers in the new landscape.

How to bring about successful Digital Reinvention in retail banking?

For successful Digital Reinvention, banks need to do the following:

• Pursue a new focus

Banks and their ecosystem partners must continue developing more secure ways of creating compelling experiences, building platforms, and monetizing new value opportunities. Various Initiatives may include more holistic ways of conducting risk assessments.

• Build new expertise

Banks should continue digitizing processes, functions, and activities. Manual processes are not suitable to gain efficiency or agility. Banks can pursue a new form of intelligent automation that is fully integrated into operations. These new processes should support individualized experiences and ecosystem connectivity and transparency.

• Establish new ways of working

Banks should look to identify and retain the talent required to create and sustain a highly digital organization. Banks will require creating and embracing innovation within the bank and across the ecosystem.

• Adoption of a self-funding approach

If banks are to protect and expand their platforms, then they will have to deploy new technologies and in a way that supports scalable growth and sustainability. They require using the latest digital tools to optimize operations and increase earnings.

• Embrace digital drivers

Banks will have to be digital leaders. Technology bolsters platforms and ecosystems, and it is essential to the creation of reinvented customer experiences.

How to transform customer experience that will drive digital reinvention in retail banking?

 In case of a legacy banking institution or a bank that is just breaking into the competitive sector, the following methods can transform customer experience in banking that will drive digital reinvention:

• Automate customer support with chatbots

With the advancement of technology, customers’ expectations and demand from the bank have increased comprehensively. They now expect banks to be quick in responding to their needs. The use of chatbots can empower banks to provide informed and personalized advice anytime to customers.

• Personalize banking experience of customers

Most of the consumers are most likely to do business with companies that provide a personalized experience. A personalization engine gathers context about a consumer and applies predetermined rules to create unique and relevant content.

• Implement modern devices

Banks can implement modern devices to provide improved customer experience to their customers. Banks should keep on with technological upgrades as outdated technology infrastructure can cause loss of customers.

Diving deep into digital

In order for setting out on the path of Digital reinvention, banking industry leaders can do the following:

Step-1

Conversations and in-depth marketing analysis help in understanding customer needs and expectations. One can conduct deep thinking on new ideas to enhance engagements.

Step-2

Develop prototypes with the use of agile development, test them with customers, and get them to market fast to promote feedback. Establish communities of interest to create a safe environment and include them as a central part of design and development processes.

Step-3

Augment digital capabilities with strategic initiatives. Build and deploy necessary applications aligned to the targeted digital reinvention model, platform, and strategy.

Step-4

Adopt a strategy based on holistic reinvention instead of a series of point solutions, maintaining a clear focus on the needs and expectations of customers.

The Future of Digital Reinvention in Retail Banking

Customer demand for cutting edge technologies and open-source platforms and apps has reaffirmed retail bankings’ position at the forefront of digitization. However, exposure to the brunt of technological disruption brings opportunities and challenges.

The success of this evolving focus will rely on retailers embracing new sets of capabilities, skills, and structures. Systems that support real-time customer insights become essential assets. The product, service, experience, and business model innovation turn into core business functionality, and the ability to analyze structured and unstructured data across sources becomes a key differentiator.

Successful digitally reinvented retailers are positioned to survive and thrive in the post channel era in which top organizations provide frictionless, seamless customer experience. Leading retailers will have to engage with customers through contextual and individually tailored communications.  Leading retailers are expected to redefine and reinvent their value chains within new ecosystems to innovate with new technologies and to leverage the data value harvested from the proliferation of the Internet of Things^[1].

By applying concepts of Digital reinvention to traditional retail banking value chains, banks can yield expanded benefits beyond the traditional process. Traditional approaches of efficiency improvement and cost reduction have characterized bank strategies in the last decade. These approaches are internal looking and not conducive to customer expansion and revenue growth.

Conclusion

Read our article:Transformation of traditional banking into digital banking