The pandemic outbreak in 2020 triggered an unprecedented overhaul in the banking sector. And the changes were, well and truly, reflected in the pattern of digitization. Statista reports that several “new banking functions” emerged in the wake of the crisis. These included digital appointments in branches, fully digital transactional pipelines, contactless payments, etc.
In fact, 18% of the surveyed banks launched new contactless payment options, and 41% of the banks increased the limits for the same. The increasing popularity of mobile banking also led to the launch of several app-only services and mobile versions of existing banking tools.
Naturally, the incumbent banks endeavored to jump on the “digital transformation” bandwagon for obvious reasons, including the opportunities for maintaining business efficiency and profitability. These new digital channels would help them penetrate the customer base, as well as improve their customer service. They could also ensure enhanced cross-selling, which would boost market share.
As a matter of fact, the market in the post-pandemic world opened itself to the very notion of digital transformation. In April 2020, the value of NPCI (digital payment enabling body) transactions declined by 49%. And so did the value of the associated UPI, BHIM, and IMPS transactions. In June 2020, however, everything seemed to be back on track, and the digital interventions had worked.
Does this mean banks were able to evolve with the changing consumer preferences? For the time, absolutely! Does this mean that banks have digitized themselves sufficiently? Definitely not!
To think that digitization is the endgame would be shortsighted and dangerous. Digital transformation is certainly not the end of the journey for banks. Some lingering elements of the business models need addressing. And importantly, banks must be in a position to constantly innovate their digital capabilities in line with the changing technology, market demands, customer behavior, competition, and regulations.
The current market ecosystem is a dynamic and ever-changing entity, posing new challenges to banks as they strive to keep up with the customers’ demands. Let’s look at the top 3 reasons why digitization isn’t the endgame.
The rise of increased customer volatility is a common trend because of the changing customer preferences and the emergence of new business models.
As Bain & Company documents, “Incumbent banks are suffering from eroding economics and fractured customer relationships as more consumers begin to engage with newer digital offerings.”
As it stands, customer loyalty is being severely tested. Why? There are several reasons, but the primary source is the transformation of the competitive environment. New players are flooding in, and they don’t play by the rules – they introduce disruptive business models and novel solutions. They also leverage their technological edge to gain customers. The following section elaborates on the same.
Neobanks and online banks have disrupted the payments industry for various reasons. They provide a more convenient and streamlined way of doing business and are highly personalized, offering an easy-to-use interface as well as new services in the field of payment.
The likes of Chime, RazorpayX, Jupiter, Paytm, etc., are persistently challenging the traditional banks’ competitive positions through their unique business models. They capture the interests of consumers who require simple account services, look forward to transparent and more manageable processes for account management, want faster transactions, and are keen on mobile access and lower fees.
If there’s one thing banks can learn from the disruptors, it is this – keep innovating. This doesn’t necessarily entail a complete overhaul of the existing systems but a willingness to implement technology-assisted solutions and adopt new behaviors in line with changing customer preferences.
Favorably, in the post-pandemic world, the market is opening to support this ideology and certainly for a prolonged period. Consider this; a recent Deloitte survey favors a hybrid ecosystem where consumers get the best of both worlds – digital transaction facilities and high-touch physical interactions.
Deloitte segregated digital banking into four themes – informational, transactional, product application, and advice. Apart from the transactional field, which included bill payments, account information updates, and fund transfers, the other three areas highlighted the importance of physical interactions in bank branches. For advice and information on new products, in particular, more than 35% of respondents indicated that they would prefer to access this information only at their branch.
There’s another way to understand this shift. According to McKinsey, the average branch size will reduce from six to four full-time employees by 2030. This doesn’t hint at a black-and-white implementation of digital solutions but presumable modernization of the bank’s operational ecosystem. And it certainly falls in line with the aforementioned balance between digital and in-person interactions.
Upon analyzing the top reasons why digitization is not the endgame, there’s a clear-cut strategy a bank can adopt that takes into account the changing technology and market dynamics. This can be done through rigorous business planning combined with structured innovation. More profoundly, it entails:
To wrap things up, the idea of digitization is not to be the end. Rather, it is to be the start of a more streamlined, connected, and personalized banking experience for customers. If a bank is able to capitalize on the opportunities that digitization opens up, it can redefine its competitive advantage and bolster customer loyalty in the process.