The banking industry wins if it is open to exploring new horizons
When we are nally able to look back and calmly reect on the previous year, we will realise that few times in history have two such disruptive events coincided: COVID-19 and the digital transformation. With the digital transformation, we had already embarked upon a journey that was redening many business models that were previously considered sacred. But with the arrival of COVID-19, this has snowballed in just a couple of months, leading to huge digital and technological leaps that we are still getting to grips with
It was a year that will live with us for the rest of our lives for obvious reasons. But at the start of 2020, it was already clear that the most successful retail banks were those showing digital leadership and advanced innovation and greater prots went hand in hand. This was already being seen in improvements in areas like customer acquisition, efficiency measures, customer satisfaction and overall digital maturity. Fintechs and Big Tech had fully entered the world of banking, and consumers suddenly found themselves with an unprecedented range of options on the market.
Those who had already shown such initiative have been more easily able to adapt to the post-COVID world than their rivals, focusing on customer experience instead of more conservative reactionary measures like cost-cutting. Instead, there has been a clear drive towards providing real-time advice, harnessing the power of open banking and restructuring supply networks to encourage the digital over the physical. Ultimately, there is greater scalability and there are more opportunities for traditional companies and new players on the market to work together.
This prior leadership has also been the key to understanding the true reach and signicance of digital banking, which goes far beyond simply performing transactions online or with a mobile app. According to a study published just before the outbreak of the global pandemic (December 2019), just 12% of nancial companies were considered to be leaders in terms of their digital transformation maturity, with more than half either behind or not even out of the starting blocks.
In this context, leadership and maturity mean taking approaches that are about more than just “mobile banking” and go further to create new commercial processes and integrate new technologies. There is a genuine need for leaders with digital expertise to seize the reigns, develop a workforce with the necessary skills and commit to building new business models that meet customer expectations with regards to speed and personalisation.
According to survey by PwC (Global CEO Survey), 4 of every 5 banking CEOs see the lack of skills and digital talent as a threat to their growth prospects. Of the total surveyed, almost half say they are “somewhat concerned” about the situation and a worrying 35% claim to be “extremely concerned”. The report claims that “Most [nancial institutions] believe that this skills gap is undermining their organisations’ ability to innovate effectively and provide a winning customer experience”.
However, in the current climate, slowing down is simply not an option. The pandemic has already accelerated the incorporation of articial intelligence (AI) in data handling to provide benets to consumers. Strategic priorities are now focused on the digital experience, improving analytical capabilities and reducing costs. This is key for any organisation that wants to be part of this disruptive wedge as it opens up new business opportunities ahead of competitors whose digital skills are lagging behind.
Another big impact of the pandemic has been in marketing. In an era where communications are more digital than ever before, the biggest challenge wasn’t how to provide an online or touchless approach. Just a decade ago, this would have been the most important detail, but in 2020, for two thirds of organisations, the biggest issue was the relative uncertainty of budget reallocation and the planning of marketing activity. But here too, those companies that understood that ultra-personalised communication with the customer is a winning strategy, will have much greater advantages now in 2021.
But when we look at this targeted relationship with the customer, it’s worth pointing out that, maybe for the first time, there has never been such an inversely proportional relationship between age group and a preference for digital solutions. A study carried out last May analysed the short-term and long-term growth in contactless payments on the high street. Whilst the so-called Gen Z meet expectations (12% in the short term and 19% in the long term), amongst Young Millennials, almost a quarter were using them in the short term but only 16% in the long term, the same proportion as Gen X and slightly more than Baby Boomers. Are we seeing an inter-generational conflict between digital natives and young millennials, for whom the pandemic has generated a renewed desire for analogue? It’s too early to say, but it’s a point worth considering.
In any case, if we had to set out where we are headed, according to the World Banking Report by Capgemini, the key operational advantages that new banks have compared to traditional banks include:
A large marketplace community instead of a large branch network.
Customer-centric horizonalisation of products instead of product-centric verticalisation of products.
Corporate culture of taking risks, launching solutions fast and leveraging potential partners.
Agility, microservices and scalability instead of a rigid structure.
Data-driven business models instead of functional silos and manual data processing.
The year 2020 has been a year of convulsion, anguish and great uncertainty. But it has also been a path towards a way of operating on the market where great opportunities will be found by those who set off with open minds and a true desire to explore new horizons.