Going Digital: The Retail Banking Transformation

With the advancement of technology at an exponentially increasing rate, Retail banks need to transform their operating models to adapt to their customer’s ever-changing needs. Retail banks need to step away from their product-centric point of view and focus on a more customer-centric one. This would also require changes within the organization, with a shift to a more flexible work culture, incorporating cross-functional teams, and shifting to more digital business models.

Mobile banking is spearheading the digitalization of Retail Banking. With the rise in use of smartphones and tablets, mobile banking is becoming the most used touch point for customers. Internet and data access on these devices is increasing so the dependency on multi channel strategies is decreasing. How banks should capitalize on this is by developing simply UIs for their apps, which streamlines all their services for the customer. The focus is now towards generating traffic on websites and apps. So the banks should maintain online relationships with the customers through social media. Internet of Things will play a huge role in the future, as more devices (watches, glasses) are introduced. Retail banks must adapt to their customers’ needs and incorporate it in their operating model. At the moment, most players are treating the Digital space as a part of their overall business model. They have a clear, long-term vision, with focus on open innovation, incorporating cross-functional teams (IT and Marketing). They still use a Test and Learn approach, and still use physical channels for their activities. Some early adopters are now using Digital as a core value, and use a completely digital business model. They use a pure-player model, and use their subsidiaries to support their digital activities. Digitalization has been ingrained in the culture of these organizations, and they are mostly paperless.

3 dimensions will support implementation of digital banking: client centricity, open innovation, and organizational flexibility. Understanding customer experience is essential. Retail banks should be attentive and pragmatic towards the customers’ needs, be ready and creative (incorporate cross-functional teams), and rethink the role of bank branches (deliver high value advice through experts). Innovation within the organization should include digital teams incorporating IT (internal) and Marketing (external). IT helps efficiently deliver new services to customers quickly. Open innovation is required for design and delivery in the digital era, as the digital and mobile market is expanding fast. There is a surge of startups and new players (“fin-techs”) in the market offering new value added services, and it is essential for Retail banks to establish connections with these players, in order to innovate and succeed in the digital era. Organizational flexibility is crucial for banks. Organizations need to seamlessly integrate the front end IT into the business and industrialize the back-end. All this would influence the change of culture within the organization and focus on a more customer-centric point of view. Banks will have to eventually outsource some of their IT, by opening up their systems to third parties, use open APIs, cloud computing, to minimize efforts. Flexibility would require a long-term vision with short-term execution, and would be the backbone of shifting to a more progressive operational model.

People engagement is one of the main goals to be achieved to succeed in the digitization of Retail banks. The management of these banks should concentrate on transforming the culture of the organization into a more forward thinking digital-focused culture. A digital foundation needs to be built, starting from the leadership level and down to the employees, and strong digital value propositions need to be developed. Technology trends, change in customer behavior, and change in branch networks are the factors determining the pace of digital transformation in the future of Retail banking. The desired result would be – maximum customer retention, paperless billing, seamless transactions and services, constant social network support, and increase in authentication securities (biometric technologies).

Investing in Digitalization of Retail Banking leads to the following-

Greater revenue growth

Once customers become digitally connected to a bank, annualized revenue per customer among those customers increases. Among highly digitally engaged customers, revenue rises at a higher rate. By contrast, non-digital customers—those only using branch services—produce a very little increase in revenue. Revenue in this context includes interest income from credit products and such sources as interchange fees, late fees, finance charges, and over-limit fees.

More relationships

After digital enrollment, customers’ average total product holdings rises. This translates to more products than they had before. By contrast, non-digital customers produce virtually no additional relationships. In this context, new product relationships included such items as loans, CDs, credit cards, and mortgages.

More loyalty 

A study found that digital customers were 35% less likely to leave their bank. At Bank of West, From January 2014 to March 2015, 8.9% of digital customers left the bank, versus 13.8% of non-digital customers. Customer satisfaction surveys have also indicated that newer digitally active customers are about 15% more likely to refer the bank to others than non-digital customers. Longer-term digitally active customers are 5% more likely to recommend the bank, compared to longer-term offline customers. This suggests that there’s an early boost for banks that court additional digital customers. The bank indicates that account alerts, mobile photo deposit, online bill pay, and mobile photo bill pay are among the services that help hold customers.

More credit activity

The volume of credit transactions rose by 12.9% during the study period among digital customers. Non-digital customers hardly moved the needle. Digital customers also borrowed more frequently, while non-digital customers’ use of credit dropped by a negligible amount. (The core of digital users, ranged from 18-55, encompassing a range of potential lifestyle stages.)

More debit usage

Digital customers’ usage of debit cards rose by 14.6%, with offline customers’ usage not rising appreciably. The bank suggests that the ability to track balances digitally help customers manage their finances when making buying decisions, contributing to both increased credit and debit usage.



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