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.
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.
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.
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:
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:
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:
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:
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:
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:
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:
Since financial institutions are starting to invest more in digital transformation, the leading banks’ experience offers essential lessons in resource management.
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