The Digital Race To Humanize Banks
- By Winston Thomas
- April 04, 2023
The lines that clearly define digital and analog lives are blurring every day. COVID-19 simply sped it up.
This blurring has an exciting impact on how we define experience, according to the IBM Institute for Business Value study “From customer experience to enterprise experience.” It notes that we no longer classify our lives separately; we see them as part of our human experience, whether from digital channels or our analog living.
For banks, this has a significant implication. They need to embrace personalization, reimagine security in a shared infrastructure world, join ecosystems, and rethink the bank organization. And in a banking landscape where depositors are nervous and have a choice, having the right CX today will define your future relevance and success.
When personalization becomes more than a buzzword
Banks have never been shy about adopting the latest technologies. Yet, many incumbent banks are seen as digital laggards in today's market. Why?
“Frankly, what has changed is how we used to operate 10 years back and now is completely different,” says Rishi Aurora, senior partner and financial services sector leader at IBM.
One major shift lies in personalization. “By customer experience, we really mean personalized experience today,” Aurora adds.
He notes that customer experience now directly impacts revenues. Once banks know their customers better, they can understand their needs. This allows them to position products and services that are more suitable.
“And if you do that, your revenues will increase, your stickiness will increase, and your customers will increase,” says Aurora.
It also allows banks to increase their product-to-customer ratio as they will be doing more cross-selling and upselling due to a deeper understanding of their customers.
The challenge is that this approach is very different from the traditional push strategy — where products from individual departments are pushed to potential customers using a campaign.
At the same time, campaign risks have increased. In the past, such a push approach would have seen customers ignore the campaign. So, it would have been a numbers game for banks — push to as many people as possible to get enough leads.
Today, this may backfire. Customers are getting more vocal and will compare the personalization efforts from other retail-facing industries.
“For example, if my bank sends me a campaign for a two-wheeler loan without understanding that I am a family of four people, the experience deteriorates my relationship with the bank,” says Aurora.
“Because I believe that if I have been with the bank for so many years, how did they send me a two-wheeler loan campaign?” he adds.
Securing an infrastructure, you don’t totally control
Personalization is a double-edged sword. While banks embrace data-driven agility and use AI to get closer to customers, hackers are watching on the periphery.
We all know that banks are seen as honeypots for hackers and malware. Over the years, banks have strengthened their defenses and created a moat of firewalls and intrusion detection systems (IDS).
But having a castle-and-moat approach no longer works. That’s because banks are now part of ecosystems so they can be part of their customers’ lives.
Many are also embracing the public cloud for various reasons, adding jet fuel to development efforts and decreasing time-to-market.
All these means that there are parts of the data infrastructure that banks no longer have complete control of. Yet, a single intrusion can damage the top and bottom lines irreparably — especially when customers have a choice.
“So, you need to rethink your checks and balances. You need to know that your entire system is secure while offering a personalized customer experience,” says Aurora.
These are why Aurora believes adaptive authentication will become more prevalent with banks. With machine learning algorithms, banks can allow access to customers for everyday tasks that form part of their daily behavior “instead of asking them for username and passwords every time,” he explains.
Re-engineering processes to be an ecosystem player
Lastly, Aurora touched on a point highlighted in the section above: ecosystems.
Being part of an ecosystem is a significant shift in the banking model. For a long time, many incumbents have worked as monolithic islands where trust, accessibility and brand recognition lured customers. Many attempted to own the ecosystems they created.
Today, customers want their brands to be part of their daily lives. They want payment to be seamless, banking functions easily accessible anywhere and offers that tailor both banking products and other retail products that are meaningful to them.
So, banks have become players in broader ecosystems. “Today, we are not only doing banking; when I go to my bank, I connect with a broader ecosystem. So, basically, the connections to the broader ecosystem have increased,” observes Aurora.
The underlying truth is that banks are now more open to the world. Yes, it’s suitable for customers, but it also may expose security holes to threats lurking in the dark places of that ecosystem.
Instead, Aurora believes they need to prepare for an ecosystem play, where supply chain attacks, multimodal fraud, the need for an ecosystem-wide security framework, and careful monitoring of data privacy across ecosystem players and jurisdictions become common. And they have to do all these while keeping the customer experience consistent.
Rethinking the banking organization
Organizational structure is very different between incumbent banks and their newer digital competitors. In the former, it is very hierarchical, with divisions and departments siloed based on products and services. Each division will have its own PnL and KPIs.
Digital competitors are a lot flatter in organizational structure. Often they begin with one product, like payment, deposit, or credit, and then scale out in functionality over time. While there are still product managers, the data is shared across the organization.
So an incumbent bank needs to change how it shares data to offer personalized services. Data needs to flow across the organization, along with insights, leads and customer needs. At the same time, metrics and incentives need to change as well.
Essentially, this creates a rift in the current banking structure. Aurora feels that it is not easy to break down siloed walls, but it may be better to pool data together before attending to the mentality.
“And that's a much broader topic around this whole data lake. If organizations understand data well, they should be able to run more pointed campaigns for their customers,” he adds.
No matter how incumbent banks go about it, they must remain aware of regulatory scrutiny. And this governance and risk management framework needs to expand to the different models that run on data.
Adequately done, incumbent banks will not only have a better idea of their customer, but they can also know their entire operations. Unlike their digital peers, they are also not starting from scratch since they’ve already amassed the data they need.
“We all talk about revenue generation opportunities, but data can also give you a projection of whether to lend or not to lend based on certain personas. Data is an integral part of the entire customer experience.”
The makings of an interactive banking-as-a-service player
The above suggestions address current needs for personalization. It also lays down the foundations for a different kind of future of banking.
“It will be more interactive, for sure. It will be more personalized, for sure. And it will be more data-driven, for sure. And it definitely has to be more secure because the systems will get, you know, will get more open,” Aurora says.
How customers engage with banks will also change quickly, especially with the introduction of generative AI chatbots.
“My view would be that the banking platform will understand what I really need to do as an individual,” says Aurora.
We may not even recognize we are engaging banks as we know them today.
Winston Thomas is the editor-in-chief of CDOTrends and DigitalWorkforceTrends. He’s a singularity believer, a blockchain enthusiast, and believes we already live in a metaverse. You can reach him at [email protected].
Image credit: iStockphoto/elenabs
Winston Thomas
Winston Thomas is the editor-in-chief of CDOTrends. He likes to piece together the weird and wondering tech puzzle for readers and identify groundbreaking business models led by tech while waiting for the singularity.