Time is money, but when it comes to banks, whose time and whose money?
‘Time is money’ – an oft-repeated phrase. However, when it comes to financial services it seems to have a different meaning, in fact it could be changed to ‘money takes time’ and usually a long time. Historically there were good reasons for this – people needed to be ‘careful with money’ and taking care takes time.
But the world has moved on as the companies combining innovative business models and new age technologies, commonly referred to as ‘FinTechs’ now operate with a speed that was previously unheard of. FinTechs realized that in financial services, speed is crucial and the customers needed more speed than was being offered by the incumbents. FinTech companies also proved that this speed did not mean compromising on the quality of credit decisions, but instead, it was all about changing the traditional approach to lending and leveraging the right technology. To give a recent example, bob finance, a Swiss FinTech company provides a completely digital, omni-channel, access to loan products, and it does this without needing branch visits. In short, it offers speed, convenience and efficiency.
If you are an end customer looking for a small loan, say $2,000, how long would you be willing to wait today? Maybe a few minutes or at best a few hours. But why is it that many traditional banks still take a few days to process that loan? The answer perhaps lies in an observation made by Bain & Company that banks can handle only 7% of products digitally from end to end. Despite lending being a significant revenue earning area for the banks, the pace of modernization has been quite slow. The banks still rely on legacy systems and different areas of the bank operate in silos – islands barely connected to each other. They follow lengthy, manual, and complex processes that are not joined up. Any attempt to improve a small part of the process, therefore, does not solve the root cause of the problem and at best is only able to bring incremental improvements.
The growing realization that a change was required, paved the way for challenger banks and digital only banks, which want to establish themselves as the preferred banks of future by doing away with the handicaps of traditional banks. As per McKinsey, it is feasible to build a new digital bank at substantially lower Capex and lower Opex per customer than for traditional banks with simplified processes and streamlined product offering. While it may be relatively easier for new banks and FinTech companies to embrace digitization, it is certainly not an impossible task for traditional banks to change and compete. Digitization can be a huge enabler to growth, efficiency and customer centricity with faster and more convenient loan service to customers. However, it is important to realize that the processes need to be designed putting the customer and not the bank first.
As the business landscape evolves and customer expectations change, a number of banks have already begun to offer loans at a much faster pace. India’s leading private bank, HDFC Bank, is betting big on digitization and innovation, and has launched a 10 sec personal loan disbursal service, a new global benchmark beating MBank’s much talked about 30 sec loan disbursal service. They have shown that an innovative combination of analytics, automation and digitization can not only boost speed and productivity but also improve the credit decision making capability tremendously. Tailored products, paperless applications across multiple channels, e-documentation, workflow-based streamlined processes, uninterrupted operations and transparency in communication can all go a long way in establishing the lender’s customer centric credentials. Banks and financial service institutions also need to consider adopting cloud based setup as it offers tremendous flexibility, agility and scalability at a reduced cost.
As the options for the customer are on the rise, it is critical for the traditional banks and financial services players to realize the need for digitization in lending and get ready to deliver small loans in a matter of minutes. It is time now to realize that in financial services, speed and convenience are on top of customer’s agenda while they shop for loans.