A customer’s experience with a bank looks much different than it did just five years ago and seems almost unrecognizable from what it was like 20 years ago. Customers who would once physically go into a bank to deposit money, interacting with a bank teller, can now do so from home. And payment apps, both from banks or third parties like Venmo and PayPal, mean that although money is being exchanged, cash is no longer necessary to do so.
The time to accelerate digital transformation is now
Fast forward to 2021. While the pandemic continues to bring many unknowns about the future, one thing is for sure: banks must accelerate their digital transformation efforts to keep up with rapidly evolving customer expectations.
With the onset of the pandemic, financial institutions had to provide access to virtually all banking services through digital channels. In many instances, while the ability to conduct banking digitally was made possible, the experiences were far from optimal.
The World Banking Report 2021 reported that, “despite being vocal about improving the customer experience, the banking industry’s delivery of the key components of a strong customer experience, such as improving transparency and social responsibility, improving customer support and reducing the cost of services, falls far short of customer expectations.”
Three common roadblocks to digital transformation in banking
Digital transformation is commonly defined as the integration of technology into all areas of a business, fundamentally changing how companies operate and deliver value to customers. But legacy financial institutions are often plagued by a number of common challenges when trying to transform.
Roadblock #1: Technical debt
Because of their role in handling sensitive information, financial institutions have a higher level of complexity than most other industries when it comes to integrations and being able to move away from the legacy systems they depend upon. Additionally, many banks have added to their technical debt through mergers and acquisitions, concerned that they do not have the time or resources to fully integrate or replace platforms. But the longer this debt persists, the harder it is to compete with digital natives, leaving banks less agile in the marketplace.
Roadblock #2: Organization size
Large banks are often able to develop digital expertise on their own. To do so, they create internal digital teams that combine business, IT, and marketing competencies. However, larger banks might find it more difficult to innovate and align on digital transformation priorities. Smaller banks, on the other hand, are often nimble and able to shift priorities, but may not have the internal resources to dedicate to these initiatives.
Roadblock #3: Relying on assumptions about customer needs and wants
It can be difficult to access the right data to understand what customers really want and where friction exists in their experience. It’s critical to invest in both qualitative and quantitative data sources that reveal opportunities to improve the customer experience. As those opportunities are identified, banks can prioritize technology investments that will have the biggest impact.
A sharper focus on the customer experience
Banks are not just rolling out digital transformation initiatives because they are nice to have or because they want to set themselves apart from competitors. Customers are demanding new features and adopting the use of modern technology at a rapid pace. Especially now, as we move to a “post-pandemic” world, customers have new expectations. After a year of remote work for many, comfort levels for using technology are at an all-time high.
Research from McKinsey found that 75% of people using digital channels for the first time (during the pandemic) indicate that they will continue to use them when things return to “normal.”
Not only are customers more comfortable with banking technology, but it has become an important factor in choosing which bank to use. According to Mobiquity’s 2021 digital banking report, 40% of respondents agreed that they are likely to switch accounts to get better digital tools.
If banks were taking the long slow road to digital transformation before the pandemic, they should be on the fast track now.
What does digital transformation in banking actually look like in 2021?
While banks have been investing in technology enhancements for a long time, the future of banking technology will bring advancements for banking operations and customer experiences. To keep up, banks should be investing in:
Mobile app enhancements
A bank’s mobile app often includes the ability to check balances, transfer funds, pay bills, and chat online with a bank representative. Peer-to-peer payments, lending inquiries, and chatbots are all examples of what leaders in the banking space are including as part of their applications.
The next layer of technology for the app space is a focus on personalization. Many banks are investing in personal financial management tools as well as offering customized bank product offerings, making personal banking more accessible and valuable than before.
Historically, machine learning engagements have required substantial data science and model training investments. However, major ML platforms have evolved, lowering the barrier of entry for these projects. Now, midsize, and even small banks, can use machine learning models to better understand customers, drive a more personalized customer experience, acquire new business, forecast risk, and prevent fraud.
Traditional lending institutions underwrite loans by using a system of credit reporting. Banks that process loan applications evaluate the risk by looking at credit scores, homeownership status, and debt-to-income ratios. Today, three major credit bureaus provide this information. But they can sometimes contain erroneous information, and the information comes at a high cost since it can only be found in three places. Using blockchain to confirm this information instead offers a more secure, efficient, and less costly way of processing loan applications.
Robotic Process Automation (RPA)
Some banking processes are still highly manual. Consider routine tasks like opening an account or reporting a stolen credit card — it takes time to get through the questions, and the consumer is usually on the phone with customer support. With RPA, in the case of a stolen credit card, the workflow process can automatically cancel the old card, issue a new card, and confirm the mailing address of the new card. RPA can also identify bots or theft with greater accuracy than a human.
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Consumers expect more. To keep up with expectations, banks must position themselves to be able to adapt quickly. Traditional banks are often at a disadvantage to digital-only competitors. Newcomers operate without the burden of legacy systems and outdated business models. But innovative technology and a digital-first attitude can help banks and other financial service companies undertake high-speed transformations to stay relevant.
Find out more about how banks have started on their digital transformation journey by learning about Primary Financial, a Fusion Alliance customer that transitioned from depending on legacy systems and manual processes to embracing new technologies and the cloud — transforming the way they operate and deliver customer solutions. Automating repetitive, manual processes increased productivity, improved morale, and presented cost savings, not only for real estate in the office, but in addition, the cost of on-premises equipment, maintenance, security, and off-site data recovery.