The business of banking is not what it was even two decades ago. Even before the ongoing pandemic changed the way the world worked, 49 percent of banking customers across the world preferred Internet banking and 47 percent preferred mobile banking. With the outbreak of COVID 19 this has now increased to 57 percent preferring Internet banking and 55 percent choosing to bank on mobile applications. Banking is moving from the physical branches to applications and responsive secure sites on mobile devices and customers are demanding more control over their transactions, better engagement, and anytime anywhere availability. Banks must re-evaluate their business models or they will perish in this new market scenario. And in order to do so, they must put customer behaviour at the heart of everything they do.
Decoding the Transformation of Banking
For decades, the banking business model remained low on both customer engagement and differentiation. Customers had no choice but to trust banking institutions with their finances and banks enjoyed a high degree of loyalty. But financial crises over the last few years, increasingly stringent regulations, digital disruption and the emergence of fintechs and technology giants have had a profound impact on the sector. Add to it the fact that most other sectors have adopted new technologies like cloud mobility internet of things and artificial intelligence to offer hyper personalized anywhere anytime services. Retailers for example, offer an omni channel experiences and highly customized offers and services. Customers are now demanding the same level of engagement, access, ease of business and intuitiveness from their banks. For the first time in history, they are questioning traditional banking models, and demanding not just on-demand access and greater control over their transactions but also better engagement. And digital native fintechs and technology giants are showing customers a whole new way of banking that puts them at the center of the banking experience. A study by the Deloitte Center for Financial Services showed that traditional banks lagged at least 12 percent behind digital brands in building emotional connections with customers.
As the uberization of the sector takes hold, customers are not hesitating to shift banks, or even take their business to new entrants in the field. In the face of such sweeping market changes and dwindling customer loyalty, traditional banks are hard pressed to transform their business models. The sector has been on the digital transformation journey for a few years now with almost 41 percent of banks stating that their digital strategies were at least partially deployed. But, the outbreak of the COVID 19 pandemic in 2020 has put digitalization up front and center of every bank’s agenda. Today banks are working on not just ensuring business continuity during these uncertain times, but also transforming their core operating models to meet customer expectations.
Putting the Customer at the Heart of Banking
Customer loyalty and trust are two key driving forces for the banking sector. At this juncture, as traditional banks focus on speeding up their digital transformation, they must start by putting the customer at the heart of all their strategies. Essentially, there are two key things that any digital strategist must understand. First, what do customers want? And second, what is their banking behaviour like? The answer to the first question is fairly clear by now. Modern customers want a seamless, easy banking experience. They want to be able to access their accounts from wherever they are, when they need it, and they don’t necessarily want to visit a bank branch for their transactions. By investing in a comprehensive strategy that encompasses cloud, mobility and modern applications, banks can deliver their services to customers as and when they demand it. But of course, this is just the first step of a bank’s transformation story.
The answer to the second question lies in the volumes of customer data that almost every traditional bank has. By effectively analyzing this, banks can create a holistic picture of a customer’s behavior – the kind of transactions they carry out, which platforms or modes they prefer, their spending habits, their savings patterns and so much more. This data is a veritable goldmine for an institution trying to connect with their customers in new and innovative ways. From hyper personalizing offers and services to creating sharper and more relevant marketing and engagement campaigns, customer behavior holds the key to modern banking. Some banks are even using customer behavior to establish new and exciting business models. For example, Discovery Bank in South Africa has transformed into the world’s first behavioral bank. They are using customer behavior data to incentivize good financial behavior through its Vitality Money rewards program. They began by first understanding where customers were spending their money, understand each customer’s financial journey and identifying the best platforms to reach and engage with different customers. With behavior at the heart of its operating model, the bank set in place a customer centric strategy that included dynamic and variable pricing, risk management and compliance mechanisms, and new ways to acquire, engage, service and terminate customer accounts. They then helped customers better manage their finances resulting in financially secure customers as well as a financially secure bank.
Achieving Behavioral Banking
When Discovery Bank decided to shift to a more customer centric model, they realized that the scale of transformation required external expert assistance. A bank of tomorrow needs to be tech enabled, customer centric and purpose driven. Yet, legacy banking cores lack the agility and cutting-edge technology capabilities required to implement dynamic customer centric products, services and promotions. Aligning with a technology partner will help them increase the lifetime value of their customer relationships through effective revenue management and real-time customer experience orchestration. With the right partner in place, banks can gain a deeper understanding of each customer and leverage technology to deliver a great customer experience. They can automate processes to create a high-quality experience and enable the right ecosystem to support the complete customer life cycle and provide optimum value. From smart, and relationship based pricing and offer management, to hyper personalization and loyalty management, the right technology partner can help drive a new era of customer centric banking and help the bank achieve its goals.
Like most other sectors, banking is witnessing a sea change in customer demand and operating models. While the COVID 19 pandemic has accelerated the pace of digitalization, banking institutions must focus on a long-term comprehensive transformation that delivers the kind of value that modern customers are looking for. With the right partner, the transformation to a customer centric behavioural bank should be achievable and a significant step towards future business resiliency.
“The views or opinions expressed in this article are those of the author. They do not purport to reflect the opinions or views of SunTec’’.