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Retail banking 2020: Evolution or revolution?

Published on 19th Dec, Edition 51, 2016

 

Innovation & technology

The financial services market is undergoing a lot of changes. Customers always have appetite for more and are well knowledgeable, looking for convenience and ease when it comes to financial services, particularly via internet and mobile phones making innovation and transformation two most powerful forces that are reshaping the banking industry. Customer expectations, technological capabilities, regulatory requirements, demographics and economics are some of the challenges that banks need to overcome in order to sharpen their tools for entering into the new era.

Most banks today want to become digital banking leaders — after all, that’s where the customers are but a digital journey demands very clear digital strategies, this is why those who started their journey years ago are still facing major challenges. Customer expectations are shifting from the traditional face-to-face model, to instant, 24/7 contact through digital channels, as well as customers are expecting that their needs are being anticipated and quickly catered for at a low-cost or for free.

Branches are fast emerging as a place where channels and technology converge to create a new era of personalized banking. New technology can extend the branch network without extending the work force. Game-changing developments in the technology of communications enable new ways for banks and their customers to engage with each other. By understanding customer needs upfront, banks can ensure their technology investments truly provide customers with the experience they desire. Consumers expect information about transactions completed via one channel to be readily accessible via another, and to initiate a transaction in one channel and complete it in another. To be successful, branches must be part of communities — and communities can be both physical and virtual. Gathering a single view of customers across all touch points is a critical step in understanding customers’ needs, and delivering the best possible customer experience to drive value in the long term.

To keep up to this fast-changing market, traditional banks will have to revise their operating business models. In particular, changes in IT, new products and services development, and changing expectations for time-to-time. As it stands now, digital is the way forward! More customers are using mobile phones and tablets to do their banking, and omnichannel takes hold in financial services. The mobile experience is becoming a crucial aspect of digital strategy that banks cannot disregard.

As more and more youth join the workforce and customer experience, digital technologies and innovation will continue to take a greater role in the way that banks function. As a result, banks have to look at technology, product and changes in customer behavior through a prism of being more mobile, more social, more analytical and taking a more diversified view on customer expectations.

Today, banks have a greater opportunity to grow customer relationships, understand which customers and households are most valuable, and increase service levels. Tying together the functional areas of the bank can improve efficiency, increase wallet share and give customer interactions a consistent look or feel. Banks gain valuable customer insight, and can eliminate redundant processes prevalent in a closed environment. Understanding what customers want is the key to success. Strengthening the relationship between customers and branches should be the primary role of the bank of the future.

 

Priorities for 2020

In Pakistan, three sectors that have witnessed tremendous growth in terms of innovation and users are Information Communications Technology (ICT), telecommunications and financial services. By joining hands, they could bring millions of marginalized people into formal banking channels. The exclusion of an entire customer base from the formal financial sector has created a window of opportunity for financial service providers in creating digital value propositions. Digital banking is likely to provide huge impetus to financial inclusion. Surrounded by so much potential, it is likely that financial service delivery coupled with technology will have a transformational impact on the country’s unbanked and financially excluded populations.

There are six priorities for success in 2020. They are:

1- Developing a customer-centric business model
2- Optimizing distribution
3- Simplifying business and operating models
4- Obtaining an information advantage
5- Enabling innovation and the capabilities required to foster it
6- Proactively managing risk, regulations and capital

The challenge of building trusted brands

One of the challenges for new banks seeking transition into established players is the need for brand recognition among consumers. While new services have effectively used advertising and stunt campaigns to generate media exposure and social media attention, they are competing with brands that have spent decades building brand awareness. This provides additional marketing challenges, as traditional large-scale tactics such as televisions advertisements tend not to be an efficient way to reach potential users.

A potential advantage for new challengers, however, is their embrace and understanding of digital services. Looking at internet reviews, an increasingly common measure of consumer trust, it is obvious new challengers have been more adept at securing positive reviews and promoting themselves through this medium than traditional providers. While the scores themselves may or may not accurately reflect each brands’ services, the number of reviews suggests traditional providers have not made a concerted effort to secure ratings from their customers. Online-only services meanwhile can push every customer to leave a review. This digital advantage may give new challengers an edge in building brand awareness and reputation among internet-savvy and younger consumers.Modern powerful tendencies are reshaping the banking industry. Social media and evolution of mobile technologies force retail banking industry to evaluate. These changes have to touch every aspect of the industry – product development, marketing, service and management. In the age of fast growing influence of technology and innovation, banks need consistent evaluations for retail branch networks and payment systems. Cost-effectiveness and customer-centric strategies become more and more important within developing global banking networks. In light of global digitalization, cyber security and fighting hack attacks become one of the general priorities. Changes in regulations and social activities also push banks to create new schemes for customer service and long-term product development strategies. Evolution of retail banking is not a perspective today; it is a consistent process, which has to take into consideration a huge number of factors.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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