To digitise or to digitalise? That’s the big question for 2021 and beyond.
Retail banking is in the throes of the most significant transformation since its creation in the 17th century. Technology is the main driving force behind the change, influencing consumer behaviours and expectations, as well as shaping a new regulatory agenda.
Technology is enabling the most sophisticated use of data ever seen, automating processes, replacing human capital and dramatically enhancing speed and customer experience. The digital revolution challenges the core of traditional banking models and demands all incumbent banks reconsider their strategies to ensure a sustainable future.
How will market forces influence the future of retail banking?
Consumers will be at the heart of the transformation in retail banking, resulting in a polarisation of the current market into platforms versus non-platforms. Competition will continue to intensify. We see the biggest threat to incumbent banks as the emergence of the platform business model. If incumbents are unable to digitalise, we expect their future growth to be under pressure.
What is the difference between Digitisation and Digitalisation?
Taking an existing process and enabling some or all of it to be completed online. For example, instead of a document being sent by post, it’s emailed to the recipient.
A complete rethink of all processes. Starting again to ensure it’s built digitally native, with the customer at its centre. For example, instead of a request for a change to an account being made by emailing a customer service address, the customer can make that change themselves on a customer portal.
How can retail banks prosper?
Following a decade of historically low interest rates and in a post-pandemic world where rate increases will be few and far between, the retail banking business model is under threat. Net interest income continues to be suppressed, requiring banks to deliver major transformation in order to reduce the cost to income ratio and enhance return on equity. Arguably of greater concern is the imminent threat to the traditional banking model from the digital revolution.
Most traditional organisations assume their journey is complete when they’ve replaced legacy and manual paper-based processes with digital functionality.
However, that is only ‘digitisation’ and not true ‘digitalisation’. Digitalisation involves an outside in approach as well as an inside out approach. Only then can lenders and retail banks achieve straight through processing for smooth and speedy customer journeys.
The bank should identify the customer/user journeys involved and develop responsive user interfaces that deliver superior omni-channel customer experiences.
Why banks need to evolve
Sustainability and survival requires a rethink of the core business model and an even greater wave of transformation to reshape the business accordingly. Whilst digitising legacy processes will help with the short-term agenda, it will not be enough to secure long-term success. To thrive in the future, banks will require a shift in mindset and focus towards digitalisation.
Retail banks need to consider these five issues when they plan out their transformation:
As customer service has evolved in recent times, we’ve arrived at a point where customers are the ones building their own journeys. Gone are the days of pre-determined journeys that look the same for all consumers. The customer decides what happens, when, and where.
When planning out digital transformation, only true digitalisation will enable such personalisation and self-service.
- Facilitating remote working
While many people will undoubtedly be returning to their offices in the coming months, many won’t. Employers may choose to adopt a more flexible approach, but we can safely say that the 2020 pandemic has shifted attitudes to the office.
To fully support the remote working model, employees need to be given the right tools and technology to be able to carry out their tasks as they did before, or even better.
Think about conveyancers and local authorities who are critical for the smooth running of the house move process. These are traditionally labour intensive, paper-based and slow processes compared to other industries. The shift to home working in these fields can only be successfully achieved if the customer journey is fully digitalised. Otherwise home movers face delays and poor experience.
Digital banks are reimagining the banking business model, developing new digital processes that facilitate speed and improve customer experience. This is the start of digitalisation and is set to change the way banking works in the future. In particular, digitalisation of bank processes end-to-end and front-to-back will maximise impact.
Many incumbent banks are more focused on digitising existing processes. Taking a zero-based approach to deliver great customer experiences is more challenging when starting from a position of entrenched legacy. Such an approach enables the testing of new ideas in the real world, without disrupting the heritage organisation, which serves to further accelerate digital change in the sector.
Whether to digitise or digitalise depends on individual processes. It needs to be appropriate for each transaction type.
Some customer journeys may favour ‘digital optimisation’ over complete transformation. The choice of approach depends on the consumer profile, the proposition, the potential return on investment, as well as future strategies. While some banks might choose a fully digitalised strategy, many will take a hybrid approach.
When someone’s in a vulnerable situation it’s important that retail banking has the robust controls and governance in place to ably support them in their time of need. Super slick apps and bots go some way to providing great customer experience, but at times only a human will do, to provide empathy and expertise not yet built into the technology.
In our research we found that the youngest generations in the financial lifecycle are craving human-to-human support when it comes to the big financial transactions and decisions. They are often reaching such milestones for the first time, so that reassurance from an experienced human is welcome, and necessary.
Customers want to have completely personalised experiences. There’s no way a retail bank can facilitate such service without digitalisation. As Martin Fleming, Mortgage Transformation Director of Lloyds Banking Group said, “Technology doesn’t provide the Wow Factor. Personalised experiences do.”
All digitalisation is designed and implemented by humans. So, when a service is developed to be digital-first, it’s been made that way by a human. Proper investment in those humans is critical to the success of digitalisation. You can have access to all the latest tools, but if the workforce deploying those tools aren’t motivated, well trained and focused, the outcome is never going to be successful.
Finding the right balance of digitalisation to align with their business priorities, strategy and culture is critical to achieving success. There’s no “one size fits all” solution. When working with a digital transformation specialist, they should get to know your business inside out to create a bespoke approach to the banking evolution.