If we reverse the clock to the late ’90s or early 2000s, you had to visit a bank branch physically or an ATM if you needed to transfer money to a friend or a family member who was in need. When online banking became mainstream, the need to visit branches or ATMs declined as one could transfer money from the comfort of their homes with their computers. But still, real-time transactions were not very accessible to all account holders and banks took their own sweet time to process transaction requests from users, which often ran into hours and there were daily time limits for online transactions.
Fast forward to the smartphone era of today, sending money from your account to someone else is possible even from your favorite instant messaging app. The rapid investments made by the banking sector as a whole in technology and digital transformation have made banking more of a self-service activity for customers. From money transfers to loan applications, everything can be done from a smartphone app. While banks rush to make banking more convenient for their customers through technology, the very approach has the potential to backfire in the long run by turning banking into a commodity rather than a privileged essential service.
The commoditization problem can be a huge challenge for banks. Studies are showing that the COVID-19 pandemic, coupled with rising digital awareness, has accelerated the adoption of digital banking among customers of all ages. In fact, nearly 80% of customers prefer to manage their finances digitally. So how can banks avoid the path to becoming a commodity in the new normal?
They need to focus on 3 major fronts:
Customer experience is the King of the 21st Century moving away from the notion of “Customer is King” that was around for ages. As competition builds up, all major banks and financial institutions run after the market trends, and in the end, all of them offer pretty much the same experience to customers. Even if the experience is great, the monotonous nature of it across the industry ultimately transitions banking into a commodity in the market.
To counter the transition, banks need to focus more on differentiating their experience. They need to focus on retaining the human touch across all customer channels despite leveraging technology to fulfill all sorts of customer demands. For example, even though studies prove that using chatbots will save nearly USD 7.3 billion annually in operational costs globally for banks by 2023, banks should ensure that the chatbot experience is as relevant as a human agent or even better, a human agent should always be ready to support next level interactions after the chatbot collects the necessary data. In fact, data collected by chatbots, and other tech deployed by banks can be meaningfully utilized by human associates to improve direct banking services when they interact with customers.
Even before the COVID-19 pandemic took the world by storm, fintech was an evolving market. They were fast grabbing the market share of traditional banking players by offering radically fast and seamless transactional experiences for customers. The pandemic accelerated their growth – it is evident from studies conducted during the lockdown period of 2020 when Europe alone witnessed a nearly 72% increase in the use of fintech apps!
For banks, it is time to stop thinking about Fintech as direct competition and stop trying to mimic their activities by building more complex technology into their own digital landscape. Instead, banks need to explore smart partnerships wherein; they could offer their extensive financial infrastructure to work along with the progressive technology infrastructure built by fintech firms to jointly deliver new and innovative services to customers. An example is Google now joining hands with leading financial institutions to launch their Google Plex services. Using these services, customers get to create a checking account with Google by leveraging any of the partnering bank’s financial infrastructure. Google doesn’t want to become the next big bank, but it wants to help banks leverage the vast consumer behavior and transactional experience data it has in its arsenal and deliver new and personalized banking experiences. Banks have the golden opportunity to connect with billions of customers by bundling their services to the brand value of Google and ultimately stay relevant in the market and eliminate commoditization.
Banking as a service is no longer the monopoly of banks and financial institutions. From telcos to social media companies, technology has made it possible for all consumer-facing internet businesses to offer banking services as well. But worldwide, surveys show that just 11 percent of consumers trust a tech company or a telecommunications provider to handle their financial credentials. The overwhelming majority of consumers still trust banks to handle their financial data and credentials. Banks can leverage this reputation and invest in more secure standards and experiences for consumers. They should be able to convince customers that irrespective of the number of options in banking they have, no one can yet beat the safety and security offered in digital services by banks. Investments in cybersecurity, fraud prevention, and user privacy can boost up the trust quotient for banks and help bring more uniqueness to their consumer approach.
The commoditization scare exists significantly for banks, but it is not the end of the road for them as well. By focusing on their key strengths and improving customer experiences as outlined above, banks have a greater chance of escaping the trend of commoditization in an increasingly digital-first world. There is no denying that they need to up their digital game, but the key is to stay unique and foster more connections with customers to avoid taking the road to becoming a commodity they can sideline.