Are we gearing Up for the Next Wave of Banking? - Focusing on proactive customer service & improvisa
The traditional retail banking industry continues to consolidate and to invest heavily in new information technology. As a result, new electronic means of transacting with the bank continue to develop due to their respective cost advantage with the traditional banking system. The peer competition, along with the explosive changes in information technology, fuels the need for banks to innovate in products, services, and delivery channels.
How does a retail bank innovate? Traditional innovation style where organizations innovate by getting new or improved products to market. However, in a service, the product is the process. Thus, innovation in banking lies more in its processes and organizational changes rather than in new product development.
This article discusses through recent examples for both the means by which innovation occurs along with the factors that can make one institution better than another. Banks need new ideas to win in today’s marketplace while tightening the belts in operation.
Commercial Banking – Various Aspects
Recent Technology Innovations, Challenges and their Impact
Addition of New Distribution Channels: New distribution channel systems, such as PC banking, mobile banking has provided more ways for consumers to access their accounts. No doubt that it added significant costs to each institution. A need to combat these costs resulted in a major cost savings coming largely through back office automation, which is a technological innovation that has recently been completed. Now, after adding significant costs through added distribution channels and cutting as much as possible in the back office, banks have realized that the key to profitability is through revenue enhancement. It is but obvious that if more products a customer has with the bank, the cheaper it is to serve them per product, and the more difficult it would be for the customer to switch to another bank.
Platform automation is the retail banking industry’s first major attempt at giving employees a single view of the customer. Prior to this innovation, it was not possible for an employee to view the entire customer relationship at one time. Why is this important? First, a single view lets the employees understand how important a customer is based on their portfolio of products, rather than on their current checking account balance. If hidden behind that low checking balance is a series of CDs and a home equity loan, for example, then the employee may want to think twice before refusing to waive a small fee associated with the checking account.
Customer Centric Vs Product Centric Approach:
Although the concept of bringing all of a customer’s relationships with the bank is quite simple, in reality it has proven to be an extremely difficult task. Retail banks collect and process information by product and transaction, not by customer. Thus, while it is quite easy to access all of the information on checking account customers or on credit card customers, taking a slice of the data, per customer, is technologically difficult. Virtually every bank has been faced with this same problem. Legacy systems were built with transaction processing, per product, in mind. Now, with the need to understand relationships, bringing this data together from a variety of systems and geographies (it is quite common to have credit card processing in another state from the rest of the retail bank, for example) is a massive undertaking.
Bill Payments – A Touch point with customer: Online bill payment has grown substantially during the last 10 years, corresponding with a massive reduction in the use of paper checks. While utilization of other forms of payment have remained relatively stable, paper checks have declined from 61% of all payments in 2000 to 26% in 2010, while online bill payments have grown from 12% to 45% of all payments.
Consumers who pay bills online have consistently used more services from their financial institution than the average customer, with usage of additional services becoming even more pronounced in recent years. The connection between online bill payment and consumer loyalty has remained strong as well.
Drivers for Further Innovations and Growth
Results suggest that inefficiencies in banking are quite large - the industry appears to lose about half of its potential variable profits due to inefficiency. Not surprisingly, technical inefficiencies dominate allocative inefficiencies, suggesting that banks are not particularly poor at choosing input and output plans, but rather are poor at carrying out these plans.
The competitive forces that bankers will face in the next 10 years will include mainly emerging business and technology innovations and societal trends that will propel and shape the industry’s transformation. The key trends that will determine market success in 2015 are customers taking control, niche competitors, a new workforce, regulated transparency and sharp focus on technology.
The need for data-based intelligence surge will also significantly impact banking sales, marketing and services functions and will support the increasing development of channel-specific solutions extracting intelligence from data in true sense and providing insights quickly and effectively to the right people at the right time. Opportunity areas for banks include decision tools and underlying support systems that help to better understand risk, enhance sales and customer service and reduce time to serve. Analytics tools have to be in place to support real-time decision making for both banks and their customers.
Mobile devices and more capable smart phones will be surpassing personal computers as the electronic channel for businesses and consumers. Mobility will provide banks with access to new markets (for instance, banking the unbanked), new mobile payment methods (including micro and contactless payments) and better use of channels such as independent financial advisors employed by banks to prospect for new clients. For the bank workforce, mobility means using location-aware mobile devices and applications, as well as being able to access remote data, such as home-office data, from afar to make key decisions quickly (for instance, those involving pricing, payment authorization and relationship management). Mobile sales force initiatives are making processes such as risk assessment visits faster and more efficient delivering a positive bottom-line impact. Hub capabilities of the bank (including pricing decisions, payment authorization and customer relationship management) will be available via mobile devices and accessible by staff when on the move.
It is possible that in coming days customers might be demanding more advocacy, security and control in their banking relationships. Banks might be sourcing products and services from many specialised and best in class service providers, including independents and other banks providing white label products and services. They will partner actively with providers to improve their capabilities without locking up their own capital and their ability to address changing demand cycles.
Undoubtedly, technology will impact significantly the strategies and operating models of banks in the next several years. Delivery channels and distribution capabilities will continually evolve. As companies are able to capture and retrieve less structured data such as voice and image, information quality and security will improve. Rapid growth in the use of collaboration tools will facilitate increased remote working, new sales and service propositions and new models of desktop support. All of this evolution increases the importance of strong hub or integration capabilities to deliver a consistent, real-time experience across the bank and its customers. This, in turn, requires a fundamental reappraisal of core manufacturing capabilities to deliver a higher level of operational benefits.
Competitive Advantage by Innovations and Adoptions help to capture market initially and because this differentiation goes away with time, continuous improvements in terms of superior proactive customer services can be good means of retaining existing customers along with attracting new ones. We have to understand that the quality of customer service will never exceed the quality of the people who provide it.
Those responsible for designing IT must understand not only the purposes of the technology, but the capabilities and propensities of the workforce, and the likely effects of different choices in technology on employee and customer behaviour. Further, IT staff must be able to assess the likely effects of different configurations of technologies and employment systems if they are to be able to contribute to strategic decisions around the deployment of IT.
About the Author
Hitendra Kumar has several years of experience in coordinating international IT projects across domains. He is currently engaged as a senior executive with a multinational financial giant. He can be reached at