Digital transformation in banking is key to level-up customer experience

The COVID-19 pandemic has put extensive pressure on the traditional banking sector to transform itself digitally or risk losing its customers altogether. Often considered digitally advanced, many conventional financial institutions are still aligned to the archaic and manual processes and fail to provide value-based customer-centric banking.

With social distancing being the current norm, the call for on-demand and fully digitized banking experience has increased tremendously over the last twelve months. Even many conservative customers have accepted digital banking in a big way.

For many brick-and-mortar financial institutions, this sudden change has been massive to manage and needs extensive technological investments to support. According to a recent World Retail Banking report published by French IT major Capgemini and Efma, a Paris-headquartered non-profit organization, conventional banks face tough competition from the mushrooming digital-only neobanks, also known as smart banks and challenger banks. “Over the last ten years, neo and challenger-banks have attracted more than 39 million customers. Currently, 81% of consumers opine that easy access and flexible banking would motivate them to switch to a new-age financial provider, in place of their traditional bank,” it says.

The report comprises insights from 23 markets, over 8,500 banking customers, and over 130 senior executives of leading banks and non-banking firms across regions.

Neobanks and payments bank disrupting banking

The conventional banks face a stiff challenge to provide unique customer experiences and resolve their complaints efficiently without making them visit physical branches. They need to transform themselves fast to stay relevant.

The ubiquitous online convenience and technological enhancements have made neobanks such as (Free, Instant Pay, and Yelo) and payments bank (such as Paytm and Airtel Payments) favorite for customers for business payments and money transfers. Incumbents and brick-and-mortar financial institutions still need to do much catch-up to bridge the customer experience gap by modernizing their network architectures, integrating efficient frameworks, and moving beyond product-focused business models.

The Capgemini-Efma report also adds that there is a growing disconnect between customer expectations and traditional bank priorities. While banks have become increasingly vocal about delivering superior CX, they appear less focused on improving support, reducing the cost of banking products and services, and offering sustainability initiatives.

On the other hand, Neobanks and payments bank offers a range of customized services, using tools based on Artificial Intelligence and Machine Learning to maximize customer banking experience.

To create new opportunities, traditional banking organizations need to migrate to the cloud – from IaaS to PaaS, SaaS, and BPaas; optimize internal API networks to eliminate silos, sync operations, build plug-and-play capabilities, and extend APIs externally to power collaborations and push new business frontiers.

BaaS to lead the revolution

Though BaaS is not a new phenomenon, fintech players’ emergence has accelerated the need for its adoption. The benefits of adopting the BaaS model are beyond monetizing existing infrastructure or expanding the customer base. It has proved itself as a critical enabler to meet banking customer needs and facilitate innovation.

Banks need to integrate digital transformation in every part of their operations and services to improve their efficiency if they have to stay in the game. BaaS can enable banks to offer a holistic range of financial solutions without making a substantial investment.

With BaaS, firms can share their core capabilities with third parties as consumable application programming interfaces (APIs). “A Banking as-a-Service (BaaS) approach, strategically defined and powerfully deployed, well supported by the management, and enriched by the right mix of partners and products, is the recipe for maximum benefits,” says the Capgemini-Efma report. Currently, 66% of banks are using a BaaS platform, while 25% are currently developing the platform. A majority of banks (38%) have been using an in-house developed platform, and others are leveraging third-party BaaS platforms.

Most importantly, third-party BaaS models offer targeted and low-cost distribution models. The World Retail Banking report cites the example of US-based Customers Bank, which offers white label products through its digital, mobile-only subsidiary, BankMobile. It enables a new customer/account acquisition cost to less than USD 10 versus traditional banks’ USD 100 per new account.

There are many private Indian banks too that have successfully leveraged the potential of BaaS to serve the changing customer needs. RBL, for instance, has collaborated with Bajaj Finance to offer vehicle loans to people across India.

The BaaS adoption in India faces some bottlenecks: Banks need to modernize their core banking system. But most importantly, the government needs to take regulatory measures such as open banking regulation such as PDS2 for a conducive BaaS ecosystem.

Data-driven insights for amplifying customer experience

While banking organizations have been setting goals every year to improve their offerings and provide exceptional customer experience, they need to maintain a proper planning and execution balance. The need for every banking customer may be unique to others.

Modern-day banking needs a consistent mapping of a customer journey to offer them unique experiences through treasured data-driven insights. Today’s banks have a vast amount of transactional data ? from their credit cards, payments, purchases withdrawals ? that can help them understand their preferences and give informational context.

Moreover, according to Capgemini, 86% of banking consumers are willing to share their data if they are getting the assurance of a personalized banking experience. However, what’s concerning is the fact that even today, not many banks have taken adequate measures to leverage customer data for improving the user experience. In last year’s World Retail Banking report, only a quarter of global bank executives said their firm could manage and utilize data to gain powerful and deep insights.

It becomes critical for banks to take appropriate actions to strengthen their engagement engine with consumers. This can be achieved by either developing in-house AI/ML capabilities or a partnership with an external solution provider. Nevertheless, integrating deeper technology understanding and aligning it well with customers’ future needs can help banking organizations transform themselves and stay ahead of the competition.

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