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Customer expectations for their banks are changing in a way that is aptly described in the title of Brett King’s upcoming book: Banking 4.0: Banking Everywhere, Never at a Bank. In a world where banks must be omnipresent but not visible, there are at once great opportunities and great risk and fear of failure. The opportunities come from the technology that enables banks to deliver the same set of services in totally new, different, and customer-centric ways. The fear comes from the fact that this technology is available for everyone, hence the debate around cannibalization of banks by FinTech companies.
In such a scenario, how can banks stay relevant?
Legacy Burden to New Core
A typical core banking system for a bank is a multi-million dollar investment and has tied banks not only to a vendor product but also constrained their speed of innovation. This legacy burden means ROI takes a hit. Fortunately, the technology exists to create a new core that is built for a digital bank, is API-led and open to integration with internal and third-party systems. An example is a platform that enables dynamic credit decision process with the standard combination of credit scores and models but also adds social determinants and other non-traditional methods and indicators of customer creditworthiness.
To modernize, banks can either rewrite their core or adopt digital native banking platforms in addition to their existing platforms or as a replacement for them. None of these options are as daunting as they seemed a few years ago. The platform-as-a-service approach of low-code development enables lower CapEx and RevEx, thus ensuring faster ROI and cost savings. Banks can eliminate the risk of business disruption by creating a roadmap whereby the front-end transformation takes place first or one where back-end transformation can happen in parallel with that of the front-end. In both scenarios, you are addressing the need of customers to access their touchpoints without even knowing what’s happening on the back-end.
Project-Driven to Product-Driven
For years, banks have been dealing with waterfall-heavy project lifecycles. They define requirements, estimate the budget, resources, and schedule to forecast when systems, software, or applications will be delivered. These large projects are often great candidates for failure because, by the time they are ready, business has changed.
Banks can learn from FinTech and other financial product companies here. For many years, product companies never used project lifecycle-based delivery. Instead, they started by determining the amount of money they were going to spend and their go-to-market timeline. Then they built the best possible product that they could ship to the market. In the digital world, banks that adopt this philosophy, for which speed and agility are key, will go farther faster. Having different development done for web, mobile, and other channels risks the omnichannel experience customers crave. With a low-code development platform, it is possible to deliver omnichannel experiences from a single codebase.
Siloed to Connected
It is all about saying, “We have all the information; we just need your consent.”
One thing that banks (still) have that most of their fintech counterparts do not is access to customers and their information. But a lot of this information is in system silos that banks created either by design or accident. Customers prefer not having to repeat information for additional products or different types of transactions interactions with the bank once they have given it the first time. But traditionally, banks required customers to do it anyway. Although sometimes genuine regulatory compliance is the reason, more often the request for the same information multiple times is the result of data that’s locked away or systems that do not allow collaboration.
The good news is that in the age of banking 4.0, banks can create an ecosystem with governance so data can be shared by products and systems. Banks can create a 360-degree customer view by assimilating data from different sources. There are external information elements that need to be included, as well, so that banks have knowledge of customer life events. The insights thus generated could enable banks to push the right products at the right time with the optimal pricing. With this well-designed ecosystem, banks can help underserved customers who do not necessarily have the same access and ability to create a perfect picture of their financial health.
Data can be a daunting and de-railing aspect of transformation. Instead of thinking about all the data available and the massive initiatives required to improve data quality so it can be used properly, banks should consider taking an, a outside-in view with the customer in the center. It is possible to transform only those elements of data that are key to fueling a customer experience, one at a time. This will reduce risk and ensure success. Keeping to a low-code theme, think of creating fine-grained insights as APIs rather than building a large warehouse or data lake.
Advertising to Listening
How many of us still get those shiny mailers that ask us to subscribe to platinum cards or give us money to open a new account? A lot of money is spent on advertising that leaves customers with the feeling that their banks don’t really know them.
Banks can capitalize on technology such as Alexa, Google Home, and so on to understand their customers better and use artificial intelligence and machine learning tools to present the right product at the right time at the right price. An example could be offering a travel rewards card at the time of a trip purchase or offering specialized co-branded pricing when the customer is searching for travel options and deals. A tremendous amount of intelligence can be gathered and used to create all kinds of unique pricing models. This will increase the propensity of purchase by the customer and also increase revenue for the bank.
When Banks Put Customers First, They Win
Banking 4.0 is actually good news for banks. They can shed aging legacy systems that are holding them back. They can emulate the agility and speed of their FinTech and other competitors. But most importantly, the tools and technology now exist to offer customers seamless, information-rich experiences no matter where they or what they use. Using solutions like low-code platforms, they can build the systems and applications that attract, win, retain, and increase customer lifetime value.