The age of waiting in line at your local bank branch is thankfully over. The banking industry went online in the early 2000s and we haven’t looked back since.
Competition between retail banks remains fierce, particularly as challenger banks and fintech players begin to take market share. In a low interest rate environment, and with bank incentives few and far between, an attractive (and secure) digital offering can often be the difference between winning and losing business.
So how can banks truly digitally differentiate themselves? Bank app and online functionality is often similar across the major players, but there are some key areas in which banks can steal a march on their competitors.
Welcome open banking
Open banking is the financial world’s way of embracing APIs. If banks create APIs, they can open up their enormous wealth of data - the world’s money - to allow third party developers to build services on top of the financial institution.
Embracing the API for banks is a matter of push and pull. The push method involves banks pushing out their resources and data to developers, allowing them to build consumer features. The spread of the data means that banks can develop an ecosystem around its services.
Alternatively, banks can pull in data, functionality and services they’re lacking through third-party APIs. Through this external data, banks can corroborate their core offerings and make the move into new markets.
The pull side is far more common. Since it’s unlikely that banks build features through their own dev
elopers or expertise, they often have no other option than to outsource development to agencies or SAAS providers. But by using external developers, banks can strengthen their network and create more features to help consumers.
Overhaul outdated infrastructure
87% of bank executives don’t have confidence in their core systems’ ability to keep up with the demand for digital, according to Capgemini. An astonishing 80% of banks were considering an overhaul of their core infrastructure within the next five years in 2015.
The numbers speak for themselves. As digital becomes ubiquitous in banking interactions, a revamp of existing infrastructure is vital if banks want to abandon old-fashioned systems that isolate data and make new features unusable.
Incredibly, data for desktop website banking and in-person branch banking are often kept on separate servers, cutting the swathes of data gleaned from email marketing from the websites and apps people actually want to use.
The only way to fix this is to gut the core systems and move into a cloud-based system. This may take time, but it’s worth it to allow data to flow freely, send updates swiftly, and draw out insights without a hitch.
The benefits of an infrastructure update are a slow burn. Banks are afraid of upgrades because they often don’t give return on investment straight away, and it can create significant short and medium term risk. But in the long run, system upgrade is a crucial part of becoming agile, dynamic and competitive.
Adapting the omnichannel
When it comes to digital, everything is connected. Updating infrastructure will have a limited effect if API adoption doesn’t go with it. And this is inextricably connected to omnichannel integration.
The omnichannel means that all physical and digital channels are completely unified, providing a seamless customer experience. But it only works when data is available to and functional on every channel a customer interacts with.
Personalising the experience
You can forget about infrastructure, omnichannel and APIs if they aren’t used to create a bespoke experience.
Banks have a unique advantage when it comes to personalisation in that they have a thorough understanding of both the markets and consumer financial behaviour. By using both sides of the data model, banks should be creating an analytics dashboard which matches and accommodates the needs of each and every consumer. The aim is to become real-time advisors streamlining face-to-face and automated channels.
To tailor a programme to a customer looking to apply for a mortgage, for example, a bank should be clued up on the individual’s spending habits and portfolio as well as closely monitoring the markets. Through this unique combination of data the bank can advise the customer on exactly the right time and conditions to make the application.
Most importantly, the banks need to think about the whole customer experience and customer journey while they’re building digital properties. This includes researching and understanding how competitors are utilizing digital properties and validating that the usability and functionality of the digital properties are useful and convenient. In fact, using a bank’s own clients for this research is a great way to ensure that the functionalities not only make sense, but are useful for their unique needs.
Partnering with fintech
Fintech companies may be the plucky upstarts, but banks have an enormous advantage as the locus of all financial data. The vast majority of consumer transactions that take place electronically involve a bank. You pay with a bank-issued card, the technology partner processing the transaction takes the money from the bank, where it runs through the payment networks and (you guessed it), it goes back to a bank.
As the beating heart of the financial industry, banks can and should take the opportunity to partner with fintech firms. In particular, banks should try to emulate the seamless user experience that many fintechs have pioneered. Of the 65% of US customers that have a relationship with at least one fintech firm, 82% of these cite ‘ease of use’ as the reason they use a fintech service.
Banking executives see six primary opportunity areas to partner with fintech firms: cards and payments, loans, financial awareness, accounts and investments, financial advice and mortgages.
Despite their growing popularity, Capgemini’s data shows that consumers trust fintech companies more than banks. This has enormous bearing on the debate currently raging among banking industry executives about whether or not banks should enter the digital wallet/payments space.
If consumers are more likely to use Android pay than a digital wallet from a bank, why should banks begin offering mobile payments?
Banks should embrace the opportunity that the digitisation of transactions presents. Too long have banks been on the sidelines of payments - by working with fintech companies they have the opportunity to move to the centre of the digital space. Banks can cooperate with fintech companies to build either their own branded digital wallets or white label wallets that work on banks’ core (upgraded) infrastructure. The opportunity is too good to miss.