What banks must do to get ahead of the digital curve?
Two decades ago I read a book about Cola wars–The Other Guy Blinked. Coke had an opportunity to buy Pepsi in the earlier days but it just blinked and missed it. The result is for everybody to see. Pepsi has turned out to be the biggest competitor of Coke.
One does not know about the future but as of now banks seem to have blinked and missed the digital transformation which is common in other industries such as retail, entertainment, media and healthcare. Now the big banks are challenged by small but agile and constantly innovative FinTech companies. The banks can yet take them on if they consider the following:
In God we trust; all others bring data
Though core banking has come to Indian banks, they are far from using the power of Big Data to their advantage. A decade ago I took a personal loan from a branch of the biggest nationalised bank in South Delhi and repaid it after some time. I never went to that branch again but I had multiple associations with the same bank from different branches. Even when I went abroad, I used the same bank for my NRI account.
When I wanted my tax certificates (their internet banking being not as smooth as of other banks), they told me to get it from the South Delhi branch from where I had taken the personal loan a decade ago. That branch was being shown as my home branch. But that branch is not even aware of any of the financial products that I had bought from the bank, let alone finding out what else they could have sold me. This is where the social media giants such as Google, Whatsapp, Snapchat and FinTech companies will hit the banks the hardest. They use Big Data to find out the behaviour of the consumers and extract immense value out of it. They manage to get real-time insights about consumer behaviour which banks, burdened with their legacy systems, can’t even think of. To remain competitive, banks need to glean real-time insights from a huge amount of information that is floating within and outside their systems.
Mind-reading the consumer
Social media giants and FinTech companies have the best of the algorithms to do predictive modelling to offer the consumers what they could be looking to buy. Today, algorithms are running various kinds of e-commerce companies including taxi aggregators. Banks need to get into this space fast. By using smart algorithms and analytical tools, banks can discover valuable insights from disparate data and base their strategy on it. If a consumer has pre-paid his home loan, he is a perfect target to be sold a savings product as he has high disposable income now. This kind of targeting can yield high conversion rates.
To cross-sell, banks need to focus on consumer data across products and services for effective insights into consumer behaviour. The key is to reach the customer and offer him what he wants well before the customer could reach out to them.
While most banks are behind the digital curve, a few are moving ahead of the competition. To counter Apple Pay, Barclays came out with three new digital payment devices that can be used without the need for cash or cards. You can pay for coffee, snacks, bus tickets, etc by just tapping your wristband–a great way to pay for cyclists and runners who don’t carry wallets while exercising. They could just wear the wristband and forget about carrying cash or wallet. Another digital innovation by ANZ Bank of Australia processes mortgage applications entirely via a smart watch.
Banks are burdened with legacy infrastructure and distribution models that stress their margins and keep incremental cost of acquiring and servicing a customer much higher than in FinTech and social media companies. Banks cannot be competitive with existing overheads. They will have to shed flab if they want profitable growth. The online universe is far more convenient than brick-and-mortar system.
While technological and organisational transformation is a must for banks to become competitive, they cannot do it without the right strategy. That’s what my next column will be about.
(About the author: The writer, a finance and strategy professional, works as VP Business Planning at Group level for ICRA. He writes on strategy, technology, investments, disruption and startups. The views expressed in the article are his own and not of the organisation.)