Banking Needs Disruption to Engage the Modern Consumer
With more choices than ever before and the power of the internet at their behest, consumers are no longer driven just by loyalty. They are seeking greater value from each transaction.
A study by McKinsey has found that more consumers are shopping-around rather than being loyal to brands they have purchased from before. In the financial services category only 10 percent of purchases were loyalty driven, with 90 percent choosing to shop-around before making the purchase. Consumers have also come to rely on an omni-channel experience.
According to a report on the banking customer by Accenture, customers relied on an average of three or more channels when prospecting. Not only that, a majority of monthly interactions with their main bank were through digital channels. As such, the modern consumer is interacting with multiple brands across different channels and expecting more from each interaction – more value and a more seamless experience.
What This Means for Banks
In the digital age, banks need more than just a simple value proposition. Technology is enabling unprecedented levels of flexibility, personalisation and convenience across all aspects of life; and customers expect the same while dealing with banks. They want quick and easy access to financial services, on the platform of their choice. Therefore, creating a frictionless banking experience, where consumers can seamlessly navigate within and across channels, is vital to retaining and engaging the modern consumer.
If we look at the banking model from financial commentator and strategist Chris Skinner’s perspective, the traditional model where banks create products in the backend, have processing platforms in the middle and physical branches in the front, is no longer enough.
Creating Customised Services
The future of banking lies in creating customised services in the backend, with an open and flexible, API-driven platform in the middle, enabling the delivery of frictionless experiences to the consumers on the frontend through apps, marketplaces and other third-party platforms in addition to the banks’ own channels. This is a massive shift in the way financial services are created, processed and delivered to consumers.
Banks have been innovating steadily on the backend and the frontend. However, progress hasn’t been as fast in the middle layer, where banks continue to be bogged down by legacy systems, compliance and regulatory concerns, and rigid policies.
According to a survey conducted by Harvard Business Review Analytic Services in association with Genpact, only 20 percent of financial services respondents said their organisations are reaping the full value from digital. Inability to experiment quickly (56 percent), legacy systems and processes (55 percent) and change management (41 percent), were cited as key barriers. This is one of the areas where fintech firms can make the biggest impact.
The Fintech Fix
Banks have spent many years focusing on internal operations and processes with a view to make them more efficient and compliant. For a number of players, customer experience initiatives are still in their early stages.
However, with an outside-in view of the industry, fintech firms have been able to identify customer pain-points and build customer-centric solutions that fill the gaps in traditional banking models. They can also move fast and leverage new technology as they are not encumbered by the baggage of legacy systems.
While this may seem like a threat at first, it is, in fact, an opportunity for banks. Partnering with fintech firms can provide access to the latest technologies and help build a better customer experience, without the heavy investments and long change cycles associated with updating legacy infrastructure. For instance, BankBazaar provides an online platform that allows consumers to search, compare and apply for financial products such as credit cards and loans.
Through our platform, banks can gain access to customers who are shopping around, and enable a seamless end-to-end customer journey from search to approval. This is just one example of how banks can benefit from FinTech. There exist multiple opportunities across different functions from payments to lending to online investments, among others.
It’s Now or Never…
Traditional banking models will continue to be disrupted by newer technology and operating models. To remain relevant and competitive, innovation and collaboration with a sharp customer-focus, will be the name of the game. The first step to achieving this is creating open systems, incorporating APIs into the middle layer of the bank, so new technology and third-party solutions can be easily integrated.
The second and perhaps equally, if not more, important step is to be brave enough to challenge the current set of business rules and policies that surround the middle-layer infrastructure in light of the new technology and new ways of interacting with the consumer. Those that act fast and embrace change will prosper in the digital age, while the laggards will be buried by inertia and the competition.