In 2018, Stamford-based technological research and consulting firm Gartner predicted that around 80% of traditional financial services will go out of business by 2030. A year later, the United States-based Bank Administration Institute (BAI) shared the same viewpoint. The COVID pandemic then accelerated digital banking usage and now consumers’ daily routines have shifted to the digital world so much that they even conduct their banking on their smartphones/computers.
The use of digital banking is growing enormously. Does it mean this is the end of traditional banking?
The answer is Yes, and these financial institutions need to be proactive, to ensure their survival. Every industry experiences the standard life cycle phases of growth, maturity, and decline, and the traditional banks, after reaching their maturity phase till the early 2000s, are standing at the declining stage. Every Industry should think of delaying the decline stage and in the case of traditional banking it has become crucial to take immediate action. In order to maintain relevance in the tech-driven 21st century, they must rethink and reshape their entire ecosystem.
Digital Transformation & Service Innovation Need To Be Quickened Up
Legacy banks are often known for their slow production and reform/transformational measures and this applies to the aspect of going digital too. Their online presence has mostly been restricted to providing the most fundamental services like bill payments, transfers, deposits, and credit applications.
As a result, banks are unable to fully benefit from next-generation IT technologies. In order to cope with the digital era, traditional banks need to come up with more innovative and customer-friendly solutions and personalised services like providing short-term and long-term loans, mortgage services, automobile financing etc. These financial institutions need to walk those extra steps, rather than just deploying fintech solutions like AI-powered chatbots, virtual assistants, data and threat analytics.
Yes, a report from the Massachusetts Institute of Technology (MIT) states that going digital can reduce the banks’ operational costs by a massive 60–80%, but things like data analytics should be stretched to their limits, in order to understand the customers’ financial priorities and offering them personalised products/services as per their requirements. It’s not like the banks are not doing the above-mentioned things, but they have to accelerate their efforts, given the current economic headwinds the world is in.
A recent Moody’s report has found that the banks in Southeast Asia have progressed significantly in their digital transformation journey and are now better placed against fintech. While the report mentioned a sharp spike in digital adoption of customers from these banks, new customer acquisitions across retail and small and medium businesses products have also increased significantly.
Remember, fintech became popular with SMEs as the latter used to face rejections from legacy lenders, in terms of acquiring capital. This report can show the roadmap for the banks in other parts of the world on how to onboard customers from specific socio-economic segments, understand their requirements and offer products/services based on those needs.
Diversity Still Matters
Yes, 21st-century customers do not want to stand in long queues, submit tedious documents or deal with complex systems and they prefer simple ‘register and get the services’ kind of mechanisms. These customers are now flocking to third-party applications (Fintech companies like Paytm, and Google Pay) which provide enriching customer experiences at the click of a single button.
While the legacy banks need to re-evaluate their strategy, they also need to maintain the factor called ‘diversity’ in their customer services.
A 2018 study from tech giant Samsung found that while 75% of consumers aged 18-29 use mobile banking, it decreases to 29% for the ones above 60. The bank visits range from 74% (18-29 years) to 85% (60-plus years).
The fact is that still in some corners of the world, senior citizens lack the technological access required for mobile banking and no financial institution can ignore this segment. These senior citizens still prefer branch visits to get things like updating account passbooks, renewing recurring deposits after maturity, withdrawing pension money etc. The bank branches need to transform and simplify their operational procedures to give hassle-free experiences to these senior citizens. While running physical offices in the digital age can be an expensive affair for a financial institution, a revolutionary idea like having ‘Smart Branches’ only for senior citizens will improve their brand diversity further.
Tech Giants Taking Over
Similar to its Fintech counterparts, a number of tech giants have started to encroach on the banking industry. These tech companies are gradually changing how individuals typically invest, save, borrow, and pay by providing rapid, effective, and user-friendly services. With the use of cutting-edge technology, companies like Google, Facebook, Microsoft, Alibaba, Apple, and Amazon have brought banking to the doorstep of their customers. The inclusive, open, and reachable ‘Neobanks’ (banks without any physical location, present entirely online) also have support in this effort.
What I think is traditional banks are left with no choice except to attempt to use the strength of digital partnerships to combat this technological invasion.
The Way Forward
The only realistic way for traditional banks to deal with any of the aforementioned problems is to quickly modernize. Banks need to embrace new technology wholeheartedly in addition to redesigning their current innovation strategy, as challenges galore.
This adoption shouldn’t be limited to service provision alone. Instead, it needs to be present on all major fronts, including those involving consumer perception, resource use, routine operations, and business models. Additionally, collaborating with Fintech companies and Neobanks can be a smart move. Such partnerships often result in win-win outcomes for all participants in the ecosystem, and they can arm banks with the tools they need to kick-start a better digital transformation.
The best way to assist traditional banks in maintaining their strengths and overcoming their flaws without fear or favour is to use both of these solutions and use them to navigate during this uncertain time.