How Retail Banking Can Survive Fintech

According to a recent Accenture report, over the past three years traditional and commercial banks have invested over $1 trillion to digitally transform their IT operations but have, incredibly, failed to realize the revenue growth anticipated from this enormous investment!

The report goes on to say that only 12% of banks appear to be fully committed to DX (digital transformation) , another 38% are engaged in efforts to transform but are doing so in an environment of disconnect and inconsistent strategy. The remaining 50% show no progress in achieving DX. Yet, $1 trillion has been spent! That begs the question, “For what?” Somebody is getting rich and it’s not the banks or their customers.

Something wrong here don’t you think. Several things actually. The study points out the banks in the 12% group, the group focusing on digital investments, are realizing more profit through cost efficiency. Not revenue growth. It suggests that the other 88% would do well to move toward becoming fully digital with the focus on revenue growth. That if they are to experience the rewards from their digital investments, they should focus on acquiring and managing customer relationships.

Another new report from Oracle and the Otto Beisheim School of Management (WHU) suggests that while many organizations may have invested in the right technologies to enjoy the benefits of DX, they lack the culture, skills or behaviors necessary to reap them fully.

These reports identify the root causes of banks failing to realize the benefits they expected from their massive dollar investment rests with two things:

• Not having the priority of their digital initiative being the needs of the customer rather than cost savings, productivity, revenue production, etc.
• Remaining entrenched in the traditional, bureaucratic model of top down control and decision making.

Just What is DX? It is difficult to find a single definitive description. Broadly speaking, however, it is a term that has become inclusive of:

• investments in and implementation of new digital technologies
• the adoption of new business and operational models that remove friction and gather data from the customers interaction with an organization
• structuring all initiatives on the new mindsets of customers and employees

When properly deployed and integrated across an organization these enable a company to become agile and more capable to deliver value that meets the ever-changing needs of their employees and external customers and to do so much faster

Whew! That’s a mouthful for sure but it’s really not that complicated. Quite simply, the core principle of successful DX is that everything done by an organization to achieve it should be done with a laser focus on knowing the customer by knowing and understanding their needs and desires. Both customers within the organization and those it serves.

As I read these studies, I was taken back to the 1970’S when I was a customer of a regional bank and conducted my business with a specific branch. I knew everyone there and they knew me. If I needed a 30, 60 or 90 day note for example, I merely called the bank, explained the need and in response was told, “No problem, we’ll have the money in your account right away. When you get a chance come by and fill out the paperwork.” Truly personal banking. The core of that relationship? The bank knew me. I trusted the bank.

I know. A lot has changed. A plethora of rules and regulations have been implemented over the past 50 years for the security of the bank and their customers. Another not so good change is that today banks don’t know, really know, their customers and this weakens their ability to serve them effectively.

Complicating this is the changing nature of the customer seen every day in their continually evolving expectations of service. The result of rapid, digital disruption in all aspects of the world in which we live, work and play. If you’re in business, you had better be finely tuned in to that fact and be prepared to deal with it just as rapidly. Today, if you are to have customers, you must know them! If an organization is not agile enough to bob and weave, renew itself and improve the customer’s journey quickly to meet their changing needs and expectations it will likely not survive. The life expectancy of S&P 500 businesses continues to drop from 90 years in 1935 to 14 by 2010. The 33-year average tenure of S&P 500 companies in 1964 narrowed to 24 years by 2016. 

Too many businesses today, to include retail banks, continue to operate their old business models and are slow to respond to disruptive competitors. In a time when digital banking has become the default for consumers tracking, managing and facilitating their financial matters the erosion of traditional banking by Fintech businesses is making the adoption of DX by traditional banks an existential imperative.

Why the need for DX in retail banking?

According to a 2017 McKinsey survey somewhere around 60% of banking customers worldwide use digital channels where 80% of customer journey touch-points and 25% of sales occur. A McKinsey Retail Consumer Banking survey found US banking customers that prefer doing their banking through the old, traditional forms is declining rapidly. Dropping from 38% in 2016 to just 26% today. Mobile is rapidly becoming the new branch.

Many banks, especially regional banks, are operating with models ill equipped to meet the rapidly evolving expectations of today’s digital customers. They are complex organizations with management, departments, products, distribution channels, and IT systems dependent upon but operating independently of one another. Intertwined in a matrix unsuited for providing quality service seamlessly across each channel.

Today’s 21st century digital customers increasingly demand service tailored to their specific needs and they expect quick resolution without being transferred multiple times necessitating they restate their need or issue each step of their journey. More and more they expect access to digital service 24/7/365 which is not only personal, but human as well.

While they expect service fast via any number of devices and channels such as chat, email or text they also want to be able to talk to a human at any point during their journey without a hiccup. They want their journey to be simple, smooth and seamless and they expect each person they interact with to know their story fully. On top of all that they also expect you to know who they are! Who they really are. Not an account number with a name attached but a human being with an account number attached.

Knowing who their customers are is knowing how to serve and is the key to survival or obsolescence in the coming years.

What does DX look like in retail banking?

To remain competitive and survive in our digital world retail banking will serve itself well to embrace DX sooner than later.

The first steps to being successful are avoiding the pitfalls that come with the continuation of:

• outdated bureaucratic management models,
• antiquated, non-digital processes and procedures and customer engagement
• cultures that contribute to failure from a lack of engagement by the very people who are in the trenches with customers every day and know better than anyone else their ever-changing mindset
• DX initiatives that focus on internal goals and not those of the customer

For traditional retail banks to not only remain competitive but to survive they must embrace change. Not in what they do, but how they do it. They must become agile, able to quickly and efficiently modify their processes and procedures or implement new ones. Additionally, they must adopt ways of doing business that enables the bank to truly know their customers.

How is this accomplished?

Three Crucial Aspects of Successful DX.

1. A New Paradigm Leadership Excellence

The key to survival isn’t just the implementation of new technology. This alone is not enough.

A DX initiative must rest upon a foundation of agile management practices and a singular focus on creating value for the customer. A new way of running the organization. There must be a retreat from the traditional hierarchical structure where, in the interest of control, centralized decision making is located a great distance from the front-line staff. The very people who deal with customers daily.

In its place must go a new transformational leadership that strategically places employees in an environment of horizontal interactions and encourages creativity. Innovation comes from a culture tolerant of mistakes made by informed, trained competent employees.

This requires having trust in employees and empowering them by providing the tools, information and professional development they need to make good decisions. This may not eliminate mistakes, but it will minimize them and those that are made will more likely be productive, not non-productive.

2. Data Collection, Analytics and Business Process Engineering

Retail banks must adopt digital technologies, web and mobile tools, as part of an omni-channel system of customer engagement and support. One that enables customers to engage their bank when, where and in what manner is most convenient for them and meets their immediate needs. Seamlessly, without friction. Yet, it must also provide quick access to human channels from digital ones.

These tools must collect customer data continuously and in ‘real time’. Derived from customer transactions, digital or human, it will provide banks insight into the needs and wants of their customers and enable them to rapidly move to meet them. Be it through process engineering or the creation of new products. 

One of the most important pieces of data is customer satisfaction, the CSAT score. It tells whether the organization is doing a good job or a poor one. A McKinsey Retail banking customer experience benchmark survey determined that a superior customer experience which resulted in high customer satisfaction lead to them being two to three more times likely to increase deposits and two and a half to five times more likely to open a new account or commit to a new product.

Digital tools which are omni-channel, measure customer satisfaction, incorporate process automation, machine learning and artificial intelligence and hold promise of increased efficiency and productivity through real time data collection and analytics are now available. The key is effective deployment.

3. Focus on Organizational Health and Adopt New Ways of Getting Things Done

With the implementation of new digital technology there must be a change in how the organization does what it does. The change must focus not just on the external customer but the internal as well, the employees, 

Decision making should be pushed downward. Management must ensure front line employees have the digital tools, information in context and personal and professional skills to make sound decisions. Make sure they understand they must live with the consequences of their decisions but make it clear a bad decision is not fatal to employment, it is an opportunity to get better.

Provide them an environment of information transparency where employees have unfettered access to operational, financial and customer information, and one where that they can quickly share learning, ideas and insights across organizational boundaries. This way, when working on related issues, they have a common set of facts and information to work from.

The viability and sustainability of an organization depends upon the talent within the organization. It must be nurtured. A culture of high employee development and environment conducive to growth through personalized training tools, participatory decision making, project ownership, cross unit accountability and responsibility for problem solving is the most productive environment for a business and its employees.

Surviving and Thriving in the Future – Good News

The good news is that there is an awareness in some 50% of retail banking institutions of the importance of embarking on a path of DX. Many of these have begun but have achieved mixed results because their efforts were not customer focused, not a CCDX (Customer Centric Digital Transformation). Additional good news is that the tools and professional guidance for successful digital and organizational transformation are available. The process isn’t as complicated as everyone wants you to believe.

If your bank, or other organization, is interested in becoming a digital business in order to not only survive but thrive in the coming years, understand it can only be accomplished by truly knowing your customers. That can only happen by improving, optimizing and personalizing their journey through the implementation of a CCDX (Customer Centric Digital Transformation). Should you need a Catalyst™ to make that trip start to finish contact us at @SATRDÉ to get an assessment and find out how we can partner to make that happen!