Feb 9, 2016

Banking Redefined by Digital Adoption, by Sameer Dhanrajani

Digital adoption is redefining banking

In the last few years, banking, financial services, and insurance has been undergoing a transition from product-based and transaction-based to a customer-centric business model, and the evolution of digital is responsible for much of it. Multichannel engagement for customers to take care of their financial objectives has become key to maximizing customer engagement, improving customer experience, and reducing attrition, which is directly related to creating newer and more innovative revenue streams for banks. The digital platform will impact the entire financial ecosystem by necessitating new internal business processes and instilling new employee skills to support these operations.

Reasons for increased digital adoption

Security and risk assessment in the post-financial-crisis topography: The post-financial-crisis landscape has left financial institutions with a tougher operating environment. Scarcity of capital has led to a tighter focus on operational efficiency and risk-informed decisions. This has put pressure on financial firms to raise their capacity to understand financial risks and act on insights in real time.
Tech-savvy customers: Customers are going digital and becoming tech savvier, more demanding, and more flexible in transitioning to competitors if their expectations are not met. The increased use of mobile phones and other emerging technologies has caused a surge in banking transactions, leading to the generation of huge amounts of data for banks on a daily basis. Analysis of this big data presents great prospects to the banking industry to churn insights which will lead to new revenue streams and lower operational costs.
New regulatory norms: Multiple local and global regulations have forced the banks to implement technology-enabled data management. Regulators, who were fine with standard reports on regular intervals are now demanding access to granular-level data for better, clearer views on the banks’ risk assessments. The multiplicity of regulation aspects, like anti-money laundering, Basel norms, and the Foreign Account Tax Compliance Act, have forced banks to implement sophisticated data-management systems since these regulations call for providing accurate and reliable data in a timely manner to the regulators.
A new disruptive landscape in banking: The digital adoption trend has created a completely new competitive environment with a complicated world of partners and competitors. The entry of small Internet-only banks, online payment models like PayPal, financial-management firms, and scores of nontraditional players has sent the traditional financial structures scrambling to figure out how they can coexist in this extended financial ecosystem. Though financial modes like social media, e-commerce companies, and mobile-phone providers are being considered partners, others like Internet banks, big retail banks, and financial-management firms are being perceived more as competitors.

Tech-savvy customers and the rise of mobile banking

“82% of retail bankers agree or agree strongly that in the next five years mobile will become the number one channel for millennials and younger consumers — banks’ future customers.” — “How Mobile Is Transforming Retail Banking,” EIU

Mobile devices are becoming the primary channel of customer interaction for both C2C and C2B interfaces. Banking, like so many other verticals, has been significantly influenced by the increasingly mobile lifestyle. Both bankers and consumers expect the use of mobile-banking technologies to grow rapidly.

The move to omnichannel customer engagement

Even though the adoption of mobile channels among customers is poised to grow, other channels where consumers and banks connect — like online, ATMs, and branches — will remain important. Many consumers, especially those coming from older generations, still prefer brick-and-mortar branches over mobile and online channels due to the inherent psychological feeling of stability and dogmatic compliance that comes with having physical locations. This demographic would also prefer ATMs over other digital payment models because of the inherent appearance of better security and reliability.

Consumers are not uniform in their banking mediums. The baby boomers, the millennials, and the retirees are each inclined to use a different set of channels in no specific order. The multiplicity of channels persists because no channel is a perfect substitute for another. Thus, banks will need to step up in all channels and integrate channels into one another so that customers can choose their preferred mediums of financial transaction and move seamlessly between them.

Moreover, mobile services could help make developing countries and underbanked and unbanked areas more accessible and attractive markets to banks. The EIU report cited earlier states that Ovum predicted that mobile money or mobile wallet use would rise to 1.2 billion users in emerging markets by 2015. This is a big move forward compared to five years ago when there were no systems in place for it.

“Almost 39 percent of the underbanked with mobile phones report using mobile banking in the past 12 months, while 22 percent report using mobile payments.” — “Consumers and Mobile Financial Services 2014,” Board of Governors of the Federal Reserve System

Evolving digital customer expectations

The general affinity of customers to move to digital is not enough for them to adopt mobile services in the BFSI Industry. It also depends on providing a compelling experience, which means providing a spectrum of value-added services beyond the basic transactional requirements. With the ever-increasing quality of services customers are being exposed to, almost two-thirds of customers now expect the same experience from the retail banking sector.

Customer expectations are set to increase further as years pass, with demand increasing for more advanced features like spending analysis and insights, wealth-management capabilities, simplifying and completely digitizing the account-opening process, customized offers and perks, extended mobile wallet functionality for C2C transactions, legal advice, and insurance insights.

Consumers believe that banks can be most helpful to them in saving and investing. This could be a missed opportunity for financial firms as customers could easily substitute them with nontraditional solutions.

Benefits of digital adoption

Here are a few practices and their benefits of being digital:

By pushing low-value transactions to mobile, banks can greatly lower operating costs and improve efficiency and quality of service, which can help them grow their businesses significantly and capture new customers.
Routine commodity transactions can be managed by digital products like mobile wallets, which can be leveraged as a platform for selling higher-value-added services like loans.
A spectrum of value-added services provides better customer experiences by focusing on customer needs, like real-time alerts and anytime instant customer service.

How do you think digital in financial services will drive incremental outcomes? Let’s talk.

Opinions expressed in this blog are of the author and may not represent Cognizant’s point of view.

Sameer Dhanrajani

Sameer Dhanrajani is Business Leader at Cognizant Technology Solutions. In his capacity, Sameer is responsible for leading end to end business spheres…