The Digital Company: It is much more than just “Online and Mobile”
It is easy to understand why digital transformation is one of the top priorities for banks and other financial institutions. The facts are clear – nearly half of the world’s total population – 3.5 billion people, use the internet for their day to day needs. There are more mobile phone users than people worldwide – 7.5 billion, of which 3.9 billion are smart phone users.
Research shows that people pick up their phone 85 times a day so it seems obvious that banks should be rushing to bolster their digital capabilities. But this doesn’t seem to be the case. The World Retail Banking Report 2016 from Capgemini, states that while 96% of bank executives agree that the industry is evolving towards a digital banking ecosystem, only 12.9% say their core systems can support such an ecosystem. A report by Bain & Company indicates that the sluggish pace of modernization leaves banks vulnerable. For example, while lending makes up more than one-third of retail bank revenues, banks can handle only 7% of products digitally from end to end. Today, only about 14% of loan applications are submitted via digital channels, but surely customers will soon demand more.
The reasons for this slower move to digital include a lack of focus, limited awareness about the benefits associated with end to end digital, the challenges of dealing with fragmented legacy systems and an inability to effectively mitigate the risk associated with the transformation. To address these gaps, it is important to be aware of the broader possibilities of a digital ecosystem in lending.
The digital journey starts from ensuring that prospective customers are offered appropriate loan products, which are specifically tailored to meet their requirements. Today’s customers value their time and may react only to relevant and personalized offers. As per an Accenture report, 27% of bank customers purchased/subscribed to a new financial service/product over the past six months. However, in the past three years, 58 percent of consumers have done business with more than two providers. This indicates that customers are now increasingly looking beyond their current financial service provider. One of the main reasons for the quick rise of FinTech companies has been their razor sharp focus on specific customer requirements and bridging the gaps in the service provided by the existing players. Along with accurate identification of the target segments and their requirements, it is equally important for banks and financial institutions to quickly launch tailored products for benefiting from the first mover advantage.
Moving on to the market launch phase, customers react very differently to different channels. To maximize conversions, it is vital for banks to approach the customer using the right channel, the one preferred by the individual customer. Insights from predictive analytics solutions have been proven to be very productive in ensuring success of digital initiatives. To improve the healthiness of the bank’s credit portfolio, a comprehensive credit scoring mechanism can help filter the credit unworthy applications right at the beginning of the cycle while also helping to automate the credit decision making process in a standardized manner. Based on the unique digital experience provided by companies in travel, retail, hospitality and entertainment, customers expect a similar experience in bank lending. Capabilities like pre-approved offers, the ability to self-apply on mobile, use of digitized document submissions, omni-channel experiences and complete visibility of their application status may very soon cease to be a differentiator, instead becoming table stakes. Offering speed and convenience to the customer are a must to create a win-win proposition in the competitive market place.
No one wants to visit bank branches, unless they really have to. Customers don’t want to spend the time and bankers would like to reduce their costs. Servicing loans can play a strong role here. In a digitally evolved setup, the majority of customer transactions could be easily managed by the customer, anytime anywhere, as per their convenience. Delinquency management is another area offering scope for digital. Keeping delinquencies low and preventing them from turning into Non Performing Loans (NPLs) may be well supported by leveraging a predictive analytics based systematic approach, backed by data driven decisions. Identifying early which customers might turn delinquent and taking the most appropriate corrective action can deliver tremendous benefits. Loan collections so far, have largely been manual effort intensive, with tremendous room for improving the operational efficiency by way of automation and use of analytics.
Much has been said about how the new age FinTech companies have combined their innovative business models and the latest technology to create a very customer centric approach, which has struck a chord with the customers. The mood in banking and financial services has now shifted from viewing FinTechs as competitors to that of a possible partner. FinTechs offer the opportunity for banks to learn about new technologies and importance of creating good user experiences. FinTechs in turn, can unravel details of handling regulatory compliance, widespread distribution and higher volume processing from the banks. As per a BCG Report, by ensuring operational and digital excellence and radical simplicity, banks can reduce operating expenses by 15% to 25%, increase pre-tax profit by 20% to 30%, and boost pre-tax profit margins by 5 to 10 percentage points.
In some parts of the world, where there are large numbers of people who are not internet / smart phone savvy, they may continue to prefer branch banking. However, as I have explained above, digital is not just about offering online and mobile access, but it is also about ensuring optimization, automation tgand standardization in the business processes. When these initiatives result in faster processing, transparency in service, quicker resolution of queries, personalization, lower cost and easy availability of service, innovative offerings and wider reach, everyone benefits – not just those who use digital channels.
By looking at digitization holistically, lenders can leverage the power of technology to unlock tremendous value for both their businesses and their customers. The infographic touches upon the various aspects of digitization in lending and the value adds that be easily incorporated by a next generation lender to position itself as a smart and customer centric service provider of choice.