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Why Banks cannot leverage on self-service options to bring out the intended business impact?

All Banks today, irrespective of size or geography have joined the Digitization and self-service bandwagon.

Investments and budgets are being carved out, and Digitization seems to be the top priority of every Bank, irrespective of size or geography Pick any annual report, or investor presentation, and in 8 out of 10 such instances, Digitization is the top strategic priority of a Bank.

But, is this journey yielding the expected or required results, in terms of a favorable impact on key business metrics? Is the Digital Index, cost to income ratio, the revenue of the Bank or the Products per customers improving? Are Banks reporting better results, and if yes, what is the actual percentage of such a positive change? Or are there some Banks who seem to have got this equation right, and have seen a significant improvement in their key business metrics, while some other are struggling?

This blog touches upon the way Banks are approaching Digitization, and its effect on the customer. Is the customer really impressed and willing to adopt self-service? Or is he being forced to comply? The answers to these two questions could be the key differentiator and an eye opener on what is the missing link. And, banks will definitely benefit from this analysis.

Need for Digitization

The market is cut throat and revenue is not growing. Hence, Banks are trying to find a path to success. And, Digitization is the new focus area for growth. 

Hence, most Banks have the following strategic priorities, when they commence on their Digital journey:

* Improving the Customer Experience

* Reducing Costs

*Delivering Shareholder Value

*Pursuing Growth Opportunities

* Improving Controls

* Improving Operational Efficiency

However, Banks are finding it challenging to achieve their priorities due to the increasing competition within, and outside the industry. And, the competition is in various forms, like: 

* Traditional & New age Banks

* Payyment Banks / Providers

* Telecom Companies

* Retailers

* Social Media Networks

Apart from the competition, the Banking industry is also witnessing a paradigm shift in terms of customer's expectations & demands - from anytime, anywhere banking, changing preferences for channels of operation, and instant service. But, Banks are yet to come to terms with the expectations and requirements of their clients. Whilst most Banks are going gung ho over digitization, few have a well-planned strategy to make digitization effective and simple for the customer to adopt.

How does a Bank ascertain its digital readiness? What are the key factors that will substantially improve the key business metrics, to report a successful digitization journey? Let's take a look at the strategy that Banks need to adopt.

The Digital tenets that bring in a favorable business impact

Technology alone cannot sustain a strategy. The aim should be to improve the customer experience, through simplification, customization of products and services, and the right pricing and sales. Not as easy as it sounds. Banks need to take a hard look at their critical customer journeys, and measure them not just for operational metric improvement, but also bring in the business impact that will deliver business outcomes that boost revenue and reduce costs. Difficult to achieve? Definitely!

But Banks have to get this right. And, they can do this in the following way:

Place the Customer at the Forefront to improve NPS scores

Start at the core – your customer. Get into his shoes and understand his real needs. What does the customer expect from digitization? Is it just the saving of time, an Omni Channel experience, or the power of banking anytime? Or is he looking far beyond – for more? Understanding the customer's needs is the most important step of a digital strategy. This will in turn create a favourable impact on the NPS (Net Promoter Score), which also creates a snowball effect, bringing in an increase in key business metrics like customer lifetime value, products per customer and income per customer, to name a few. This improvement leads to higher sales and revenue figures which show an upward spiral.

Think of how an Amazon or Apple succeeded in getting their customer's asking for more. It's really pretty simple – they placed the customer at the centre, got to his/her core, understood what they really wanted, and designed a simple product / customer journey for fulfillment. This led to improvement in Customer Experience, higher NPS, brand loyalty, thus resulting in higher revenue. A favourable package of impactful business outcomes, driving increase in revenue and growth.

Take another example – Airbnb. This startup has achieved name and fame by understanding its target audience, what they want and staying close and personal to them. Banks can learn a lesson from Airbnb on how to create the personal touch by creating a product which is exactly what the customer needs.

Simplify Key Customer Journeys

Banks have to learn from their own and other industries they co-exist with, on how to simplify their business processes. If purchasing products and services from a Retail or Telecom company can be done in 3-5 simple steps, why do Banks not take a hard look at their legacy processes? By keeping such processes the way they are, and bringing in a layer of digitization, Banks are ensuring a near death for their digitization strategy. So, be it customer onboarding, mortgage loan application, setting up a standing instruction, or transferring funds, the means to get the same fulfilled should be quick and easy. Banks need to find ways to reduce the steps and automate as much as possible. Banks also have to use social data, pre-fill customer information and make relevant offers.

Take the Bank of Internet in USA, a fully internet only Bank. Their mortgage process is simplified to enable a customer to be granted a mortgage loan in 40-45 days, and it comes with an escrow guarantee of refund of processing fees, if the Bank cannot disburse the loan as per the promised turnaround time.

Garanti Bank in Turkey boasts of 80% of its transactions being originated and fulfilled through self-service channels.

Etsy goes one step further. The company displays a progress bar to show where a shop which is being on boarded is in the flow of the process.

Whilst these companies have shown the art of possible and made digitization a success, the impact on their business will start showing results in 2-3 years. The quick win cost reduction will help these organizations re-invvest the saves in further digitization efforts, which in turn will bring a positive impact on their NPS, Revenue, Cost to Income Ratio and other critical business metrics.

Proactive Customer Education and Support

Handholding customers in their purchase and fulfillment journeys helps digitization to be successful. Proactive customer communication, in the form of exhaustive FAQ's, videos, online communities and blogs, podcasts will help customers get it right the first time, thus avoiding re-work and longer turnaround times. Supportive tools like interactive online chat, outreach to customer care experts and chatbots will make a customer overcome barriers to contacting the Bank and provide the customer with personal, helpful information. Moreover, corresponding proactively with a customer will aid the first time right metric of the bank and benefit the customer too. All these initiatives will create an impact on the customer experience and will help the customer adopt digitization in a big way.

Amazon has mastered this art, and, its showing on their balance sheet and share value.

REI- the shoe company offers an excellent in-store and offline customer experience, through knowledge equipped staff, blogs, learning centers and Q&As. A truly Omni Channel support to make an informed, quick and simple purchase decision for all its customers.

Isn't it time for Banks to get into this groove to make digitization an impactful initiative for themselves and their customers?

Creating a seamless Omni Channel Experience

Real time synchronization between channels is a must for digitization to succeed. Most Banks fail miserably in this strategic initiative, thereby creating an adverse impact on its digitization index. And, the reasons for this being, the Banks inward focus (Bank centric relationship with its customers) instead of focusing on the customer. Banks treat an Omni Channel experience as an add on product, creating some digital functionality around existing channels and adding some new channels like mobile apps and social media banking to support other channels. This approach does not help anyone, creating a barrier for the customers to experience a seamless transaction flow, from one channel to another.

The Retail industry has fared far better on this point. Customers happily browse through their mobile app or the internet, select a product, and can pick up the same from a store near them. There is a seamless flow of information and a complete synchronization between channels.

Case in point is Disney, which has upped its level of Customer Experience, by taking care of the minutest detail. Right from its mobile responsive website, mobile app, experience tool, Magic Band tool and fast pass integration which are all well synchronized to give the customer a blissful Omni channel experience and keep him hooked throughout the Disney experience, without a glitch. No wonder Disney is laughing all the way to their Bank.

So should their Bank not go back to their drawing board and completely re-imagining their customer journeys in an Omni channel environment? And, then use the data available to leverage analytics and derive insights, to make customized offers and products for their customers? Only then, will customers enthusiastically adopt the digital way thereby creating the required business impact for the Banks.

Using Analytics and creating Insights

Customers have changed, and they are redefining the way they select their products, services and carry out transactions with their Banks. An exposure to the digital world, through other industries like Retail, E-Commerce, Telecom and Travel, to name a few, the new age customer has access to the latest technology through mobile apps, social networks, challenger Banks and Fintechs. Customers are getting used to customized offers, pricing and products. And, Banks are sitting on the fence watching this roller coaster ride, wondering how to create a compelling digitization strategy that will bring in a favorable business impact. What Banks are missing out on, is the use of customer data, of which it has tons, to bring in customization and personalization, in every interaction with its customers.

Banks can take a leaf from McDonald's, who leverages analytics on the data it collects like wait time, information on menu, size of the orders and the customer's ordering patterns to improve and optimize its operations at various stores and locations. And, we know how well each McDonald outlet does.

Target, the US Retail store uses behavioral analytics to predict customer's life stage events like marriage, becoming parents and others, to identify predictive models to base its promotional offers. Such targeted offers have helped Target boost sales and revenue.

On the other hand, the high end retail store Nordstrom, with over 225 outlets, leverages data from Pinterest, Twitter, Facebook and stores to offer a personalized shopping experience. By analyzing data points on store footfalls, length spent by a customer in a particular section in the store and shopping time, Target leverages Analytics to promote products to customers. And, their cash registers are ringing.

On the Banking front, Bank of America uses Analytics to crunch customer data and make offers of cash back rewards at outlets / merchants that customers shop with regularly. This has a definite impact on the NPS, and will help Bank of America to boost revenue.

Meanwhile, Turkey's Garanti Bank, through its mobile app, sends push notifications to its customers on personalized offers based on past spending analysis and current location.

However, this is not enough if Banks want to be truly profitable. Banks are still pretty slow in their progress on the Analytics front. Getting to know their customers – as in does Mr. Smith really need the personal loan that the Bank is pushing for? Or does he need portfolio services, since he is sitting on high balances in his account, and his investments are not routed through the Bank. Or should Mrs. Royce be sold a savings plan for her son since he has just started school (his fees are being debited from the account) instead of the Bank pushing a vehicle loan?

Banks have the data. They just need to get one view of the same, and leverage analytics to create meaningful insights and make targeted, personalized offers. This will increase the cross sell / up sell index of the Bank and bring in a positive impact on key customer and business metrics, thus spiraling growth.

Banks thus have to move from a product focused organization to a customer focused one, and apply analytics on the vast customer data held by them, to create a platform of need based selling that will help hook a customer. This will enable Banks to compete strongly in the industry and remain profitable.. [PK1] [DMS(2]

It is now or never – to create that business impact through Digitization

Banks have to act fast. Competition in the form of challenger Banks, Fintechs and other boutique firms, will not wait for banks to catch their breath and get it right. Customers are being spoilt by other industries who offer the prefect experience and they are willing to adopt self-service. There is no dearth of players in the market who are offering customers what they want, thus weaning them away from the main stream banks.

To stay in the reckoning and gain substantial competitive advantage, Banks need to build credible, easy to use digital propositions.

The innovators and early adopters can expect to witness a meaningful gain in their business – by way of 30-35% revenue uplift, a 300-500 bps improvement in their net promoter score, with a corresponding dip of 25-30% in their total cost of operations, a 50-70% reduction in distribution costs. Key metrics like NPS, products per customer, digitization index and others will move favorably, whilst the cost per transaction, cost to income ratio, cost per employee will swing downwards to create favoubale business impact. And, the laggards will just be a name in the annals of history.

It's now... or never!

References [PK1]

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Sushama Divekar

Sushama Divekar

Consultant - Retail Banking, Analytics & Insights

Not Applicable

Member since

12 Sep 2014



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