With the increasing demand for digital banking products and changes in consumer behaviour, banks are trying to implement new methods to increase consumer options and improve their banking journey.
Digital transformation has been a key trend for the banking sector in 2021. Banks still have a long way to go in their digital journey, with only 27% of the institutions launching their digital transformation strategy last year.
According to a survey by the IBM Institute of Business Value, 60% of representatives of the world banks believe that the boundaries between various industries are slowly decreasing. This means that banks are facing new competitors, and the major challenger among them is fintech service providers and systems that are combining both financial and non-financial organisations.
About 27% of the banks launched their digital strategy in 2021
Figure 1. Digital transformation strategy launches
Source: HubSpot
Customers have changed and their methods to utilise banks are changing drastically because of some reasons. First, the pandemic forced the consumers to completely rely on online banking and second, the consumer market has shifted towards Gen-Z and millennials. These consumers expect traditional financial organisations to deliver financial products through digital solutions just like Google or Apple. As a result, traditional players have to introduce new methods to retain and attract other potential customers.
The banks need to strengthen their position in the market however, with the limited approach being followed by traditional banks, it is becoming difficult for consumers to choose the right option.
Tactics that banks should consider during digital transformation
Banks need to start the transformation from the basics. Digital transformation involves the transition of all the services of a traditional bank to completely new ones and they are built on modern technological solutions. The transformation factor for a bank is way bigger than introducing a few financial products online.
A successful digital strategy must involve decisions that are well discussed with the IT professionals so that technological developments can be lined up with banks’ strategic priorities. The IT functions are considered different from a bank’s core implementations however, this has to change if the banks plan to establish digital banking as one of their core arrangements.
1. Implementing new and better technology
Technologies are implemented to support banks in achieving their goals however many banks find themselves restricted by their outdated technology. This is common as banks run on legacy systems that are outmoded and they have built up a significant technology debt, resulting in a slow, inflexible business framework that weighs down the banking process. Due to this, banks find it difficult to even stay in the market.
On the other hand, neobanks have been successful in the market due to their rapid implementation and the technologies used. These banks don’t have these problems because their banking platforms are lightweight, easy to maintain and can support the rapid development of new products according to market demand.
Traditional banks can start getting digital by changing their technologies and upgrading them to the latest application programming interfaces (APIs) and the cloud that will help them to stay updated with the market.
2. Taking measured steps toward digital transformation can be helpful
The most crucial factor that banks need to consider is choosing the best and most efficient method to transition from old to new. The banks have two options: either rip out their existing working methods or start implementing technological advances gradually.
Implementing a new set-up all at once sounds logical but can be time-consuming and expensive. While transformation takes place, banks remain at a technological standstill, and innovations and products are put on hold until the new setup is established. This leads to banks compromising themselves and losing their market hold.
The best and most effective option is gradually shifting services to a new system. When the banks start to upgrade to a new platform, one service at a time, they can still function and provide new products without hampering the consumers. Moreover, the banks will gain confidence in using the new system and will continue to migrate other services and operations until all services are upgraded and working on the new technological methods.
3. Building better consumer relationships
The ideal approach to a bank’s functioning has always been relying on making the customers aware of the relevant products. Banks have been growing based on this strategy. This approach introduces the customers to other banking products. For example, a customer with a savings account would be advised to open a Certificate of Deposit (CD) account. If a bank digitises smartly, it can move into ecosystems beyond the core banking options.
Improving consumer relations is the most visible result of the transformation. The banks can tap into their existing client base and determine their requirements. This can help the banks to create ideal products that meet consumer demands.
With the introduction of digital technologies, not only the external communication gap is settled but the internal analytics, marketing and sales get simplified. This allows the bank to know what is happening with their customers at any hour of the day, to contact them at the right moment, and make their offerings more personalised. This enables the banks to directly deliver the right product without any trial or error further reducing the costs.
Implementing the right tools can help the bank to deliver more than discrete bank services. For instance, when a customer’s goal is to buy a house, the bank only offers them a mortgage and the process is finished. However, with the right tools such as mortgage calculators, banks can help consumers to determine the right amount for a mortgage so that they don’t end up in debt.
Digital transformation in banking improves the consumer journey
For banks, digital transformation means using the latest equipment or software but they also need to analyse their approaches to management, communications and different services offered.
Nowadays, every bank has a website and an app to provide digital financial services. However, these basic services don’t classify as digital transformation.
Banks need to implement technological advances in their strategies. The economic sector was one of the first industries to feel the digital influence, as the development of the fintech industry began in 2008. With the increasing demand and due to the pandemic, financial structures were forced to look for new alternatives to reduce costs and maintain the quality of services.
The customers of traditional banks have to follow a series of procedures to attain banking services. The banks start with a marketing team building the leads, then those leads are transferred over to sales and further to customer services. During this process, the consumers feel disjointed or disconnected even before they attain a product.
Digital transformation can solve consumer issues such as communication and lack of right information, and difficulty in selecting the set of products to deliver.
Consumers can access the online system, get in touch with customer representatives 24/7 and use chatbots.