Digitization of Financial Services: Doing Things Right is Better Than Doing It All

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Although the value of fraudulent activities in online banking is expected to reach $7 billion by 2020, the focus on digital channels in banking has been only increasing as banks are facing competition from challengers and are looking to cut costs of physical infrastructure maintenance.

DBS estimates that financial institutions that are not able to adopt a digital model may see a drop in ROE by ~18% over a five-year timeframe. However, retail banks that are able to reinvent themselves could see a substantial increase in ROE, around 18%, largely driven by the lower cost of serving customers and the efficiencies they will reap.

“To meet customers’ digital wants and needs — and to save money — many banks are aggressively expanding digital channels. But so far, this is not going smoothly; customers are not abandoning physical channels. Although banks are offering more channels, they are not realizing desired outcomes such as reduced costs and higher customer engagement,” experts from Gallup note.

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Recognition of changing consumer behavior and preferences led financial institutions to the development of practices that would allow a smooth transition to digital channels, ensuring a seamless experience. At the end of October, Gallup published results of a study (with continuation) outlining six strategies financial institutions could use to ensure a smooth transition to digital channels.

In-branch ATMs can help bridge the migration to digital channels

ATMs stand at the borderline of physical and digital banking experiences and can be a starting point for introduction and promotion of digital channels. Leveraging ATMs to gradually introduce customers to the use of digital services could be especially useful for customers who are primarily branch users.

“To point customers to ATMs, kiosks and other digital resources, banks should provide targeted awareness-building activities and education, including walking customers through the process when necessary. This tactic not only reduces the need for future human interaction but also helps customers feel more comfortable with online and mobile banking,” experts explained.

Banks should make mobile banking more akin to online banking

Mobile devices are playing a critical role in everyday life — they are used for communication, shopping and consuming financial services (the number of smartphone users worldwide is predicted to be over 2.5 billion by 2019). In fact, some estimates predict that more than one in three people in the world will be using smartphones within the next two years and, by 2019, almost 200 billion transactions a year will be made via mobile phones and tablets.

One of the largest banks in the country, Bank of America, has been putting effort to understand modern trends in banking behavior of Americans and found that >62% of Americans cite digital as their primary method of banking. For comparison, in 2015 the number was 51% — quite a considerable difference.

However, banks don’t always take advantage of the digital channel — especially when it comes to targeting customers who are not tech-savvy and providing mobile options beyond basic banking, experts suggest, offering several ways to improve usability and functionality:

  • Creating a mobile user experience more similar to online banking;
  • Leveraging advanced biometric security systems to increase customers’ comfort with activities such as paying bills and making mobile deposits;
  • Allowing greater flexibility in policies, such as higher limits on check deposits or currency conversions;
  • Creating a superior omnichannel experience by integrating click-to-call, click-to-chat and video banking options.

Online account openings should include a personal component

Even though the emphasis on digital channels seems to be the natural course of action for financial institutions, the personal touch will remain an important element of consuming financial services.

“Our customers still want to visit us,” Jonathan Velline, Wells Fargo’s Head of ATM and Store Strategy, told Reuters in an interview. “They’re still coming to our stores and our ATMs at pretty consistent rates.”

Banks should approach digital account openings as an opportunity to complement digital banking with personal interaction by providing options for personal service via chat, video or phone.

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