Last year was a trying period for the banking sector. As the pandemic spread rapidly, banks had to restrict their operations to essential services. All other non-essential functions continued online.
For a long time, banks were cautious and slow in adopting digital transformation. It resulted in the emergence of fintech, which promised to be faster and efficient than banks. It almost disrupted the banking industry. However, the pandemic coerced banks to follow the footsteps of fintech and use digitization as the core function instead of an enabler. This massive transformation has also brought a change in the CIO’s priorities for 2021.
Let’s look at the three core priorities that the banking CIOs must focus on this year.
Three Core Priorities of Banking CIOs in 2021
- Strengthen: Develop a strong frame: While creating a rock-solid customer experience, automating processes, and simplifying the onboarding and KYC process is top priority areas, banks will have to think beyond and prepare their infrastructure for data overload caused by the rapid transformation. The immediate focus area for a CIO this year should be to embrace cloud computing fully. Traditionally, banks have been reluctant to adopt cloud computing due to security concerns and strict regulations. According to a 2019 report by the Bank of England, only a quarter of global banking activities were cloud-based. But the banks’ need to cut costs and improve operations has compelled them to shed their inhibitions and move to the cloud. Last year, HSBC bank entered a deal with Amazon Web Services (AWS). In India, banks like RBL and IndusInd have accelerated their adoption journey. At their end, service providers like AWS have been strengthening their security measures and promising the utmost security of customer data. The promise of increased data security has warmed up banks to shared infrastructure rather than restricting themselves to the private cloud. However, that should not be the defining criteria for the bank. CIOs must weigh the pros and cons of shared vs owned infrastructure before transitioning to cloud.
- Surge: Focus on futuristic opportunities: According to McKinsey’s global banking annual review report, the banks worldwide are staring a potential revenue loss of $1.5 to $4.7 trillion due to COVID-19. The only way to sustain and grow business is by offering innovative services to increase customer spending. Look at IDFC First bank’s example. Recently, they launched a credit card plan that would charge the customer interests as low as 9% APR on outstanding credit. Experts believe that other banks could follow the IDFC First bank’s footsteps considering that customers are going to increase their use of credit cards and other products post the pandemic. This move of attractive rate will set the race going for setting competitive APR amongst banks, resulting in customer benefits. To identify similar opportunities, banks must first analyze customer data to understand their spending behavior. For example, the 9% APR is as of now applicable to existing customers only. IDFC’s proprietary scoring mechanism evaluates the customer profiles and offers interest rates based on the scores. Banks possess a gold mine of customer data, which they can use to offer personalized products to customers. For example, if a customer plans to get married, banks can recommend new products such as customized financial planning, loans, or special discounts on trousseau, holidays, etc. Banks can also up-sell or cross-sell new products based on the data. Personalized financial planning, dedicated marketing campaigns based on the customer’s current sending habits are all value-adds that could help banks improve customer retention. Data is the future of banks’ growth. However, in a bid to improve customer relationships using data, banks should not ignore the privacy laws such as GDPR and CCPA. The CIOs must ensure that the bank abides by these laws and respect customers’ data while using it to increase their spending.
- Thrive: Create a competitive advantage: We live in an API economy, and it’s clear that if banks have to thrive in this intense competition, they need to create a strong differentiator for themselves. We already discussed how data analytics could help in improving customer relationships and increasing their spending. Apart from that, banks will have to experiment with innovative instruments to maintain customer relationships. New instruments such as Prepaid Payment Instrument (PPI) and Buy Now Pay Later (BNPL) offer stiff competition to banks. In 2019, RBI allowed banks and non-banks to issue PPIs to up to Rs 10,000 to eligible PPI holders. BNPL also has been growing at a phenomenal pace with over 33% of survey respondents using the option over other credit facilities. So, where do banks stand in this growing competition to increase customer spending? These new payment instruments might seem like a threat but given the shift in the way customers are buying, it’s time that banks embrace these innovative instruments to thrive and acquire new customers. HDFC Bank, for example, offers customers an option to open a PPI Escrow Account to cater to their online wallet needs better. Similarly, Lunar A/S, a Danish bank launched a pay-later solution to allow customers to split or postpone their transactions. Even large banks like JP Morgan Chase and Citigroup have entered this game to offer customers the freedom to purchase things without worrying about finances. Considering that more instruments like these will continue to enter the market, the CIOs must be prepared to offer such options to their customers. They must track changing customer needs and align their products and offerings with them.
Cloud, Artificial Intelligence, Big Data, and other innovations such as BNPL and PPI will change the way banks function. It’s time for bank CIOs to embrace agile and start prioritizing these changes to provide a good experience to customers and thrive in an increasingly tough competition.
At Verinite, we can help banks transform with the help of digital power. It will be a gradual process. But if done right, banks will be able to meet changing customer needs more efficiently and align themselves with them without any hassle.