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As banks are working towards digitization customer expectations of banking have risen noticeably which has been accelerated by the pandemic.
Two questions to ask
- What has been the impact of COVID-19 on the digital agenda of banks?
- What are the key areas for digital success in banking?
The need for different strategies around innovation and digital banking was apparent in banking well before the pandemic hit. As technology has developed, there has been a rise in customer expectations of banking, not least from the instant and personalized services provided by the leading technology firms. FinTechs have shown what is possible and that all banks need a digital plan. For those who are skeptical, since the lockdown we have seen a 72% rise in the use of fintech apps in Europe.
This is a key battleground for banks as they try to convince investors they can incorporate an effective digital path for customers, while also reducing costs and not risking operational resilience. So what has been the impact of COVID-19 on this agenda? It is always dangerous to look at long-term trends or analyze the impact so quickly after such an unprecedented shock. However, even at this stage, we can detect some changes and examine some of the questions raised.
Digital revolution to last forever?
The most obvious change has been the swing to effectively online only models. It has been an incredible transformation as banks have moved nearly all their interactions with customers to digital. In a previous article, we discussed how likely it is that consumer behavior changes back once we return to more normal conditions.
They key point was a mere 16% of consumers across Europe expect the way they bank will change over the longer term because of COVID-19. There is a generational gap too. The over 55s are the least likely group to have changed the way they bank, with only 17% expecting to bank more online in the next 1-2 years, while 28% of under 35s do.
If lockdowns continue, then we may see behaviors further embedded but at this stage banks have a dilemma. They are working towards a digital future, and the pandemic has created the environment to demonstrate what is possible. Yet customers have not come on the journey for a more permanent transition and need more persuasion to make digital adoption the norm.
How fast can banks adapt?
The speed of change is key. There is no benefit to monitoring what your customers are saying or watching them get frustrated with a particular process if you can’t change it quickly. Bank teams should ensure real time engagement with their risk and compliance teams as well as putting controls in place to minimize conduct and compliance risk.
The ability to spot and quickly smooth over any bumps will be key to making the experience better for customers and avoid reputational damage. Banks can also improve their web channels by personalizing experiences through self-selection navigation, targeted online banking communication and robust FAQ content and features. It all helps customers and should also ensure less need for more call staff.
Open banking APIs (Application Programming Interfaces) powered by advanced analytics and advanced AI can provide richer real time personalization than customers receive today, and many FinTechs can provide powerful accelerators.
We may also see bank executives looking at divestments as they look to fund much-needed investment in digitization. EY´s 2020 Global Corporate Divestment study shows divestment activity is poised for a strong return with 60% of banks intending to divest within the next 12 months. Many banks will look to use the funds raised to accelerate their adoption of digital technologies, such as analytics, artificial intelligence, robo-advisors and blockchain.
Data should be at the heart of digitization
It won’t be surprising to hear that those banks who have better digital capabilities will benefit relative to peers who may struggle to cope with banking in the lockdown. Customers are being forced to use digital channels and may look unfavorably on banks whose systems feel slow, cumbersome or overly complicated. Banks must ensure customers using remote channels have a positive experience both during, and beyond the crisis.
Regardless of their digital prowess, banks should be using the last few months to digest the data they are seeing from their digital channels. We know many banks have been challenged by a surge in customer queries, which has led to delays in customers being able to contact their bank. Customer insight, say through call center demand analytics, should feed into banks plans to help them increase response times and better serve customers. For example, using chatbots or redeploying branch staff to boost contact center capacity. Some have predicted that the operational cost savings from using chatbots in banking will reach $7.3 billion globally by 2023.
Regardless of the increased use of technology, with branches largely unavailable, maintaining connectivity for customers is key – and we have seen banks do that, using apps, emails and website messages to speak directly to individuals.
Even for the digitally able customer, many are finding that digital services are unable to handle their very specific, complex and urgent needs. Banks should use the crisis to identify where the current customer journey can be improved to enhance the experience during and post crisis.
Four key areas for digital success
Many banks had already started including some or all of the below, but COVID-19 has made it clear how key these four areas are to making digital work for customers and banks.
- Redefining customer experience: Putting customers and their needs to the forefront to build solutions with staying power. Banks should look at co-creating with customers frequently and often in a proposition lifecycle.
- Taking a mobile-first view: From contactless banking to account access, customers expect product and service accessibility from portable devices, at a moment’s notice.
- Developing a data strategy for personalization: Building solutions means knowing what data you have, what data you need, what questions you need to ask of that data, and how to interpret the answers. Centralizing existing datasets is key.
- Selecting the right technology platforms: When building new services into operations with extensive legacy processes and assets, and subject to high levels of regulatory scrutiny as banking, choosing which platforms to use and how to use them is essential.
For a bank executive today, there are a myriad of issues to tackle. There are economic, operational and regulatory pressures to deal with in the short term. There is also a complicated debate over which technology will be most disruptive or key to change. For example, some believe the cloud offers the biggest opportunity for banks. It offers the sophisticated personalized and real-time services that clients and customers expect where for others AI offers the biggest payoff.
Yet banks have a fantastic opportunity as they have retained the trust of customers and should have the capital to implement the right strategy. Central to success will be advanced technology and a digital ecosystem that takes costs out while delivering better products and customer experiences.
Summary
COVID-19 has accelerated digitization of banking as customer expectations change during the pandemic.
This potential digital change, brought forward by COVID-19, will also help banks cope with the tougher operating environment the pandemic has brought. For the longer term it will be a fundamental step in boosting profitability and returns in the sector.