At the height of the pandemic, consumer behaviour began to outpace the channel capabilities of slow-moving incumbent banks, reinvigorating providers around digital transformation imperatives. Incumbent bank digital transformation doesn’t occur in a vacuum, but against a moving target of evolving consumer preferences, multiplying new entrants, and changing economic conditions.
Digital Technology Trends
Listed below are the key technology trends impacting the digital transformation theme, as identified by GlobalData.
Renewed focus on core system modernisation to improve agility and time to market
The longer lockdown went on the more it penalised those banks that had failed to digitise critical sales and service pathways pre-Covid. In contrast, many new digital banks, while more vulnerable from a balance sheet perspective, were far better placed to adapt and evolve processes. This has led to renewed focus on creating agility and flexibility in the underlying technology platform so incumbents can pivot more easily to deliver new sources of value to customers.
Zero-scratch redesign of core decision-making processes to realise breakthrough cost reduction
Rather than automating simple processes first institutions are beginning to prioritise core decision-making steps to realise the biggest increase in process efficiency. Take credit, for example. Credit-related activities are typically divided into front-office, risk management, and back-office procedures. Integrating these actions end to end can allow institutions to conflate all credit steps into one straight-through process, backed by continually updated analytics.
Optimising digital experience for first-time users
Massive increases in net new digital users have driven a laser-like focus on user experience. Tech companies specifically formulate experiences not just to be quick and easy but to optimise dopamine release; that is, to be addictive. This is not just about game mechanics and leadership boards, but agonising over task flows to optimise interactions, relying on deep quantitative and qualitative insights from journey analytics.
Moving away from generic models to more sector- and segment specific risk assessment
Generic assumptions underpinning traditional risk assessments no longer apply. Authorisation criteria, fraud and risk models, customer personas, and segmentations need a complete overhaul. Once overhauled, assumptions will require periodic review given the fast and often unpredictable way in which the virus is evolving. Making sense of the vast array of data coming in (volume), more quickly (velocity) from more sources (variety) is critical.
Heightened focus on personalisation
The drive for personalisation cuts two ways. More people online create more data points to help calibrate interactions, while reduced branch capacity increases the need to provide that personalisation through digital. Our survey data suggests heavy branch users typically value personalisation the most, perhaps because the branch is often best equipped to deliver that personalisation.
Credit unions and regional banks worry about losing that in-branch personalisation in the move to digital. Large multinational banks, meanwhile, often have the tech budgets to deliver a level of personalisation through digital that surpasses smaller players, whereas those smaller players may typically perform better in-branch.
More fluid, artificial intelligence (AI)- enhanced onboarding and fraud prevention
Covid-19 has created a golden age of cyber-attacks for fraudsters. From February to April 2020, cyber-attacks against the financial sector increased by 238% according to VMware Carbon Black data, including a variety of new attack vectors few incumbents are optimised to manage and mitigate.
AI is playing a critical role in delivering more security at a lower user experience cost. How quickly users enter key information, like date of birth or address, can reliably predict whether the user is potentially a fraudster.
Increased automation to reduce cost and enhance resilience
Many banks were operating at reduced capacity at the height of the crisis. They had to repurpose branch spaces as socially distanced call centres and operate split teams or clusters. Creating chatbots for the most common Covid sales and service requests freed up human advisors for more high-value interactions.
However, growing anecdotal evidence of chatbots misfiring at moments of heightened emotional stress has created a pause. As the crisis deepens, otherwise automated escalation procedures and process steps will need manual overrides to avoid foreclosing on an otherwise viable small business or a consumer segment afforded protections by the government through state support.
Accelerating multi-cloud migration to accommodate increased working from home and app usage
Cloud-based systems have been critical in helping banks adjust to a massive increase in remote working, a massive increase in customer app usage, and heighted security and fraud risk across both. In particular, banks that invested most heavily in cloud pre-Covid were much better positioned to establish huge virtual call centres in days and modify workflows to offer new government-backed loans.
Prioritising rich remote advisory services underpinned by smother channel transitions
Rich remote advisory services – combining video banking, chat, screen-sharing, etc. – have formed the basis of many outreach campaigns to provide human-like help and support. Some wealth firms now use biometric authentication – be it facial, fingerprint, or voice recognition – to enable remote trade execution, rather than forcing a face-to-face meeting to fulfil risk awareness and client eligibility compliance.
Digitising both the branch and the branch advisor
Amid Covid-19, massive branch closures will likely coincide with further branch digitisation to deliver more support at lower cost. Bricks and mortar will focus more explicitly on being a facilitator of digital education and onboarding, alongside premium appointment-only in-person advisory. The big four Australian banks are using dedicated enterprise tablet apps to empower branch staff to have more meaningful, needs-based sales conversations with customers, especially for younger, less experienced branch staff hired to provide customer service.
Repurposing ATM networks
A recent study from Google and AppsFlyer found that ATM use globally had decreased by 50%. At the end of April 2020, LINK – the UK’s largest network of cash machines – reported that cash withdrawals were down 60% since lockdowns began. This represents a massive sunk cost. In Spain, providers like CaixaBank have rolled out facial recognition technology at 100 ATMs, allowing customers to withdraw money hands-free.
5G and early-stage Internet of Things (IoT) deployments
5G connectivity would enable customers to use their own devices in-branch to reduce touching and enterprise device management costs, while functioning as an added push to get users familiar with the bank’s digital platform. The integration of health tech and money management could alert customers when their temperature is high and surface Covid-related money management features – a use case China Construction Bank explored at the height of the crisis.
Digital ecosystem strategy
While mobile brought banking into everyday lives, ecosystems integrate consumers’ everyday lives into banking. DBS Marketplace incorporates non-banking activities into proprietary banking channels. Customers can buy, rent, or list a property; buy or sell a car; book flights for holidays and hotels; and switch electricity supplier, all within DBS online banking. This has helped increase loyalty to its primary products, while generating additional data to enhance its primary (i.e. lending) services.
This is an edited extract from the Digital Transformation in Banking – Thematic Research report produced by GlobalData Thematic Research.