Banks need to look before they go digital

Even as the banking world speaks in one voice about the need to go digital, something happens to burst its bubble. In October last year, it was the failure of Bank of England’s creaky CHAPS (Clearing House Automated Payment System) that delayed hundreds of thousands of payments, leaving home buyers and sellers and big businesses stranded. And extremely unhappy.

There’s a valuable lesson here for banks stepping into digital territory without setting their houses in order — by all means adopt the new technologies you need to attract new customers, but do not forget to fix the current set-up to keep existing customers happy. This calls for a balancing act in which banks need to renew what already works to make it work better, while separately adding new capabilities.

What to renew

Renew systems and processes: Customers want more. Competitors are pushing harder. Regulators are piling it on. And so systems and processes must be upgraded. And upgraded again. One way of escaping this endless cycle is to explore extensible design, which brings flexibility to the upgrading and reconfiguration of systems, architectures, processes and business rules.

Automate the back-end: Usually it is the bank’s front-end that is the target of a digital makeover. However, there’s also a strong case for automating back-end processes that power the front-end experience, to extract greater value and performance.

Refresh the brand: A 2012 study said that consumers found financial brands less desirable and engaging. The Millennial Disruption Index (MDI) study reinforced that verdict by reporting that 53 per cent of respondents didn’t think their bank offered anything different. Being traditionally conservative, banks haven’t created the kind of branding diversity seen in many other industries. But with business going the retail way, it is imperative that they rejuvenate their brands to achieve differentiation, even as they remain attractive to existing clients.

Strengthen loyalty: A third of the participants in the MDI survey were quite ready to change their bank within 90 days. Retaining customer loyalty is becoming a losing battle. Clearly, worn out, cookie-cutter reward programmes aren’t cutting it; the need is for a strategy that is more personalised, cross-channel, and looks to engage rather than merely reward.

What’s new

Walk the cloud talk: The future of enterprise technology architecture is in the cloud. And banks, whose cloud agendas have been hampered by concerns of compliance and security, need to get a move on. They can make up for lost time by building an enterprise strategy that enables them to respond with speed to changing market dynamics.

Go further with mobility and Big Data: Mobility is morphing into new forms such as the wearable devices. As banks such as Spain’s La Caixa experiment with smart wearable-based banking services and applications, they are going to uncover yet another source of real-time consumer data. They need to process that information through Big Data analytics to get insights into consumer preferences and behaviours, which should be ploughed  back to create next-generation personalised offerings, and improve fraud detection capability.

While on the subject of data, let us not forget the Internet of Things. Banks must tap into the IoT data stream to refine market knowledge and loop it back into the creation of customised, contextual offerings for customers.

Adopt new models: Payment has witnessed the maximum innovation and disruption of all financial services. But while the likes of Google Wallet and Apple Pay have revolutionised the front-end, the underlying systems of clearing and settlement remain trapped in legacy. The result? Making interbank or cross-border payments continues to be expensive, slow and vulnerable to a variety of risks.

That could end happily if the internet-based protocol underlying the cryptocurrency  bitcoin — which eliminates intermediaries in clearing and settlement and completes transactions in (near) real-time — becomes a mainstream payments mechanism. Several banks are running experimental programmes with Blockchain and Ripple, poster boys of the ‘next big thing’ in the industry. If banks eventually adopt this technology, they will provide ease of use to customers. 

Think design: Undoubtedly digital is a big driver of next-gen banking. But it is not the only one. Banks must also adopt new thinking along with new technology. To achieve breakthroughs in the future, it is not enough to merely solve familiar problems, but banks have to anticipate ones which have not yet been identified. Design Thinking is a tool which will help banks in this discovery process.

(The author is Head, Finacle Product Strategy & Pre-Sales, Infosys.)