Banking customers globally are adopting digital banking. To remain competitive, retail banks need to provide the digital services that their customers demand or risk decreasing profits and unhappy shareholders. Innovators will create new products, automate processes, and improve their customer satisfaction scores while those who fail to act on the digital trend could even face punishment by regulators.
McKinsey & Company analyzed trends and suggested that those who shun the digital trend could see profits eroded by up to 35 percent while innovators could experience up to a 40 percent growth in earnings.
According to McKinsey, there are four fundamental ways that banks can create value through implementing digital capabilities:
- Digital technologies increase a bank’s connectivity with customers, employees, and suppliers.
- Digital utilizes data and advanced analytics for better decision-making.
- Digital enables automation of repetitive, low-risk tasks and processes.
- Digital promotes innovation across products.
Bain & Company reported that those banks successful at digital innovation will be able to eliminate 30 percent of their branches and significantly reduce costs. At the same time, they will be able to expand product variety, strengthen customer relationships, retain customers, and increase profitability.
To be successful, retail banks and the financial industry must do the following:
- Integrate and connect distribution channels to provide a seamless experience for customers both online and in branches;
- Identify opportunities to provide better customer service and experiences;
- Increase loyalty and customer engagement;
- Address decreased levels of trust due to uncertain economies; and
- Compete with FinTechs and other competitors and digital innovators.
According to i-Scoop, there are 12 retail banking priorities as follows:
- Cost reduction – lower cost per transaction and increase sales
- Customer focus – improve customer service consistently
- Single customer view – connect systems and processes
- Develop new offerings, products, and services
- Digital and direct banking
- Branch consolidation and innovation
- Analytics and data
- Identify silos
- Digital marketing and customer service strategies
- Change customer behavior through customer experience and service
- Increase pace of a digital banking ecosystem
According to Monica Woodley of The Economist Group, (via Banking Technology) “the surge in interest in digital channel strategies was driven by concerns over competition from new entrants – 35% of respondents cited it as having the biggest impact on the industry, up from 22% last year and tech and e-commerce companies are the competitors that banks fear most”.
Digital banking should not be seen as the only way to bank. It is an increasingly larger piece of the retail banking market, however, customers still rely on customer service and traditional banking via a physical branch. Youbiquity Finance 2016 reports the following issues with online banking:
Source: Youbiquity Finance 2016
When approaching a digital strategy, retail banks need to focus on the desire of their customers to be mobile. Banking customers today increasingly want to access their accounts from their mobile phone or tablet. Retail banks have had to invest heavily in infrastructure to insure security for their customers.
Retail banks should focus their digital strategies on the following upcoming trends, as reported by MBN Recruiting Solutions:
- Use of mobile phones as a payment card. Banks need to determine how to solve security issues or their customers may defect to competitors who offer this service.
- Omni-channel banking enables customers to use whichever channel they prefer, retail bank branch or online banking and should provide seamless service over both channels.
- New offerings to compete with money transfer services such as PayPal.
- Fraud and ID theft detection to analyze customers’ typical purchase data for earlier detection of suspect transactions or use of chip or biometric technologies for better customer authentication.
- Insight and customer analytics can assist in customer retention, growth in market share, and increasing the share of wallet.
Currently, banks are in the early stages of digitization. To compete with existing digital innovators, McKinsey reports that retail banks need to develop the following:
- User-centered customer-journeys that combine personalization, agility, and ease of use in opening an account or applying for a loan.
- Personalization, leveraging data, and advanced analytics to create targeted offerings such as at the point-of-sale or recommended products.
- Rapid experimentation and agile development to deliver products more quickly.
Digitization is not an easy process. Investment, planning, and multi-department planning is necessary to benefit from all the digital opportunities available. Designing a digitized strategy entails rewriting the rules of how retail banks compete. If a coherent strategy is not developed and adhered to, retail banks risk damaging their reputations and their profits. If the strategic challenges of digital advancement are addressed, retail banks can compete effectively, enjoy long term growth, and become more profitable over time.