Stop Trying to be a Digital Bank

The pressures to digitalise have only intensified for banks over the past few years. Almost every aspect of banking, every system and every service has been impacted by new technology, new competitors and rapid changes to customer behaviour. In response, high street banks have accelerated digitalisation programmes, and have made significant strides. However, many digitalisation projects are driven by tactical demands rather than strategic vision. For many, the goal is to deliver a set of digital services that compete with the offers of fast moving FinTech’s or Neobanks, or to provide cost savings. Instead of trying to out compete digital entrants feature by feature, high street banks should look to leveraging their strengths in data and customer insight to leapfrog competition.

BEYOND THE LOW-HANGING DIGITAL FRUIT
The global market for digital banking is predicted to reach a value of $13.9 Billion by 2026, yet the primary driver for digitalisation among traditional high street banks remains cost-cutting. Driven by shareholders demanding returns in low-growth markets the first objectives of digital projects tend to be to take cost out of the system. There is nothing wrong with this, but most banks have now reached a point at which the low-hanging fruit of easy savings has been gathered. Even so, traditional banks still have much higher cost income ratios, (at between 55% and 73% for UK high street banks) than their pure-play digital rivals. It is probably impossible for them to slim themselves down much further to compete on costs with these new entrants without losing their differentiating characteristics. Increasing public and political concern over branch closures and maintaining accessibility for all sectors of the population will further restrict the ability of digitalisation projects to contribute significant cost savings. 

REAL CUSTOMER CENTRICITY REQUIRE ENTERPRISE-WIDE DATA
So instead of viewing digitalisation purely through the lens of cost savings, high street incumbents need to use it to reframe their approach to meeting customer needs. They should stop trying to become pure-play digital and instead focus on customer-driven digital transformation: stop thinking “mortgages” and start thinking about what needs to be done to help customers to secure a home. One criticism of Open Banking initiatives is that they encourage providers to deliver services because they can. For example, account aggregation; many customers find that after the initial excitement of seeing accounts in one place, it does not really solve any particular problem. To avoid feature ‘arms-races’ banks should interrogate the vast quantities of data they have on what customers actually do in order to develop better, more useful banking services. 

This is the mindset shift needed today. Digitalisation is not only about cost savings, nor is it a rush to deliver evermore sophisticated (complex) apps to customers. Digital projects should start by unlocking, combining and querying data to discover new, unmet needs. Ultimately this makes digital transformation truly customer, rather than operations or product, centric. 

DON’T LOSE THE HUMAN TOUCH
The best bank of the future will not be a 100% digital bank. Significant research and insights from across the industry all point to customers valuing and wanting personalised advice and a ‘human touch’. Digitisation is necessary, but not sufficient.

Future high street banking leaders will be ‘Smart banks.’ Those that not only combine cutting edge digital experiences with personalised, human-centric service, but which are agile and flexible to meet the evolving needs of every individual customer. They will use data analytics to define and offer bespoke products at exactly the right time and through the right channel. Smart servicing will use automation and AI to create rapid, cost-effective and accurate decisions that deliver value to customers and the bank. The real digital opportunity for high street banks is to regain their position as the primary financial partner for their customers, offering a range of services that precisely meet their actual needs, rather than a raft of apps. 

THE UNDER-UTILISED ADVANTAGE
The great news is that high street banks already have a significant, and hard to replicate advantage over neobanks, fintechs and even Big Tech. The years of financial and customer data they possess is one reason why Big Tech is so keen to partner with financial services sector. Banks that can successfully connect this data in ways that ensure it flows across the whole enterprise, bridging (in data privacy compliant ways) internal divisions and product groups, can not only rapidly define new products and services, but equip staff and applications with insights that enhance customer service.

Building on an enterprise data platform that can integrate diverse data types and sources from across the bank as well as from trusted 3rd parties and external inputs, banks can develop analytics that can transform their relationships with customers. At the same time, they can use this data to offer value added services that position them as responsible citizens with the insights, capabilities and relationships to help businesses and individuals reach their own sustainability and values-driven objectives. 

Suddenly digitalisation becomes the strategic foundation that drives purpose in the bank of the future. Those that invest in analysis of their data at granular level and whole-enterprise scale will rapidly outperform those focused on providing point solutions or ‘digital products.' To learn more about how enterprise data strategies are the essential pre-requisite for effective digitalisation, please get in touch with the Teradata Financial Services Consulting team.