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Banks have progressively adopted digital banking transformation into their operations for a while now. Yet, the effects on cost, efficiency, and customer lifetime value were difficult to measure. This might perplex the task of sorting investment priorities. Some financial institutions have made remarkable strides in accomplishing a well-designed digital offering and are acquiring the benefits while others fail far behind in their bid to get value from digital applications. This article investigates what differentiates the leaders from other competitors.
The advantages of digital banking transformation
There’s no doubt that digital banking transformation correlates with higher customer satisfaction by entitling users to access products/ services swiftly at more conveniently. This has become crucial since customer expectations for a seamless digital experience keep soaring. Customer loyalty is now determined by which technology solutions best satisfy their unique set of needs. Even if customers are satisfied with how their digital banking needs are addressed, they would still consider switching financial services providers for a better digital experience.
Well-orchestrated digitalization also helps increase employee engagement. Most staff of the digital insurgents regard their firm as a great place to work, giving a higher Net Promoter Score (NPS) on Glassdoor than other traditional banks. Furthermore, top banks are ranked higher for a bright future outlook on Glassdoor and illustrate higher leadership and employee alignment.
The third benefit slides to shareholders. According to Bain & Company’s survey, top traditional banks in digitalization recorded a return on average equity of 8.7%, notably higher than other traditional banks by 6.2%. The leading banks also operate with a significantly lower cost-to-income ratio of 58%, compared to 70% for others.
Seven crucial dimension for digital banking success
The Bain & Company’s survey assessed 50 banks in EMEA via a questionnaire and interview combined with an external analysis of each bank’s online banking and mobile app to explore seven bank performance elements that are essential to digital success.
1. Vision and goals: How distinct is the financial service’s digital positioning and agenda, and how well does it communicate that brand message to consumers?
All brands have invested heavily in digitalization to gain competitive advantages and achieve digital banking success. However, only a few so far have obtained a robust digital performance.
The leading banks convey their digital vision, empowering transparency and commitment to their objectives. ABN Amro, for instance, incorporates digital into two of its three primary strategic pillars - ‘’a personal bank in the digital age’’ and ‘’closer to our clients’’. These strategic targets are also displayed on the bank’s website to reinforce the messages.
In addition to direct communication, top-tier banks also persistently experiment and innovate their existing core business with new products and services (engine 1). Meanwhile, they develop entire news business operations (engine 2), varying from automotive marketplaces to digital attackers. These strategies can help banks diversify revenue streams and potentially preempt digital disruption.
For financial services providers that trail behind in this dimension, leaders should ask these questions:
- Are our digital ambitions bold enough in the market?
- Do we invest in a new business, or are they purely alterations of the existing business?
2. Simple, modular proposition: How user-friendly are the corporation’s products, and how well can they be adapted to customer demands?
Most traditional banks have difficulties launching a simple, transparent product offering that is based on meeting consumers’ needs. Instead, they tend to develop a wide range of products more concerned with features than needs. These complicated portfolio results from years of adding new products and neglecting to phrase out legacy items.
The industry leaders, on the other hand, create product portfolios that are either entirely standardized and simple or vast and suited to customer needs. Providing an advisory tool instructing clients in their product selection is one way to reduce complexity. Societe Generale has a lean digital portfolio and delivers an easy, question-based procedure to discover the ideal product for their current needs.
Questions for managers:
- Do we have a lean online portfolio, and if not, then how can we decrease product complexity
- What is the consumer opinion on our proposition? Is it simple and easy enough for them?
3. Customer episodes: How well has the organization digitalized episodes to create a remarkable user experience
Most banks initially have usage (like payment transfer or monitoring the financial account balance) or relatively simple purchase episodes rebuilt. Several leading banks, however, have also begun to concentrate on service episodes and more complex purchase episodes, leading them closer to end-to-end automation. Their episodes are constantly improved and optimized based on customer feedback.
For instance, mBank enables clients to add a new insurance policy or apply for a credit card online in just a few steps. Recently, NatWest introduced the UK’S first paperless mortgage application, assisted via live chat and call-back options, with extended hours. Hence, by designing solid digital purchase episodes, banks can notably enhance sales via higher customer acquisition and effective customer interactions. Financial institutions that have digitalized 80% or more of their purchase episodes generated an average of 73% of their sales through digital channels. In contrast, banks that have digitalized 40% - 60% of purchase episodes recorded only 41% digital sales share.
Managers should ask themselves:
- If we have not seen digital banking transformation pay off as expected, are we overlooking the importance of purchase episodes?
- In addition to digital front-end procedures, have we managed to facilitate end-to-end processes to cut further expenses?
4. Integrated channels: How frictionless and consistent is the experience across digital media?
Most digital leaders strive to achieve channel integration and consistency by offering a seamless experience across all channels while maintaining essential linkages to other channels. Mobile channels are most prioritizing, with bank leaders highlighting clean design, intuitive navigation, and short response time. Furthermore, traditional channels are also digitalized: offering free Wifi, smart ATMs in brick-and-mortar branches or established fully automated e-branches
As banks gradually transform for better customer engagement and reduced operational costs, they are attempting to migrate customers to digital channels. A combination of soft measures (like communication campaigns, support services team and employee incentives) and selective hard measures (like pricing or eliminating offline services) can be implemented to encourage e-banking adoption. Nevertheless, here banks must carefully consider the risk of losing some clients.
Questions for bank leaders:
- Have we decided which customer segments require a fully integrated multichannel offering so we can shift other consumers to lower-cost digital channels?
- Have we taken reasonable measures to drive digital migration?
5. Customer loyalty: How methodically does the company track and respond to customer feedback?
Every financial institution gathers customer feedback. The leading banks, however, go far beyond that. They evaluate feedback at least weekly at various levels of granularity, from the brand to the individual interaction. They have installed systematic and replicable processes to act on comments, including following up with unhappy customers and making product and services improvements.
Take Garanti BBVA as an example. The firm has a department accountable for the user experience. This team closely tracks NPS and acquires critical insights via different sources. Additionally, a digital experience team conducts monthly usability tests to detect and solve digital channel issues.
Questions for managers:
- Have we acted on customer criticism, or merely measured their review?
- How can we deploy customer feedback to deliver seamless customer experiences?
6. Operating model: How well does the enterprise support a change to digital?
Leading banks have been revamping their business models to execute digital banking transformation and focus on customer demands. By forming cross-functional Agile teams, they have dissolved organizational silos.
Netwest’s operating model changed from products and distribution to a customer-centric approach. To transform their ways of working, the company implemented cross-functional teams dedicated to individual journeys. Still, skills shortage becomes an obstacle in this operational model. It is estimated that 70% of banks are in need of employee with strong digital knowledge and competence in legacy IT systems.
Questions for managers:
- Do we have solid employee recruitment and selection policy?
- Are there any improvements made in our current recruiting approach?
7. Digital transformation strategy and data foundation: How well does the firm’s IT aid rapid innovation, and how sophisticated are its data analytics?
With inflexible application architecture, incumbent banks are struggling with delayed time to market, causing their product launch to lag substantially behind digital attackers. Consequently, most financial institutions are employing Agile development methods in the hope of drastically decreasing time to market while simultaneously increasing the flexibility of IT infrastructure and product development. Although most banks have adopted Agile methods, only a few of them apply Agile for their digitalization projects.
Regarding analytics, the majority of financial institutions have an advanced analytics strategy, yet, not all banks can prioritize use cases based on financial and strategic outcomes rather than on the feasibility of the use case.
Furthermore, most banks are equipped with rigid IT and inadequate data quality and accessibility. In this aspect, digital attackers have an edge since their back-end systems are designed with data gathering and processing in mind. The most advanced utilize a ‘’data lake’’ - a single source of truth for data and customer feedback - as a foundation for real-time decision making.
For instance, Widiba invested in a data lake that provides every department in the bank a general view across business units and offers fodder for decisions like campaign optimizations and ad placement. They also leverage data-driven insights to help cross-selling, personalization, and pricing.
Questions for managers:
- What is the firm doing to diminish the barriers caused by its legacy IT?
- Have we had a plan for incremental or total replacement?
Lessons for investment in banking digital transformation
Since financial institutions are starting to invest more in digital transformation, the leading banks’ experience offers essential lessons in resource management.
1. Clarify your digital transformation strategy as well as the path to achieving that objective.
- Clearly outline how digital channels and tools aid in the execution of the strategy.
- Extend the bank’s partnership with technology companies to accelerate product development and foresee significant shifts in digital trends.
- Increase investment in engine 2 initiatives to diversify revenue streams and avoid interruption to the core business.
- All of these initiatives should be communicated to consumers and other stakeholders clearly and consistently.
2. Revise the overall proposition to provide a better customer experience
- Decrease product portfolio complexity and highlight simplicity with features like advisory tools to assist clients in product selection.
- Design customer-centric proposition and develop individualized products to boost cross-selling as well as upselling.
3. Stimulate the redesign of customer episodes
- Pick out the most important episodes for user experience and navigation overhaul.
- Generate seamless, swift and easy purchase episodes to turn designs into profit growth.
- Add services and assure end-to-end automation once customer volumes have increased to reduce costs and improve convenience.
4. Align the operating model to a digitally integrated banking paradigm
- Fully embrace Agile methods at scale and invest in cloud and other flexible elements of IT architecture to reduce time to market.
- Avoid data silos.
- Place customer data at the center of decisions.
- Divide their digital journey into smaller initiatives to make steady progress toward the desired goals.
About KMS Solutions
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