Financial institutions around the world are redefining how customer experiences can be improved and channel engagement increased. The role of the industry is at the epicenter of this discussion, as organizations focus on building integrated, technology-based ecosystems. Most importantly, banks and credit unions must support channel agnostic delivery where applied data and analytics allow a customer to determine when and where to engage without changing service levels.
According to a report By the Economist Intelligence Unit (EIU), there may be a number of sweeping changes on the horizon regarding the way products and services are delivered and the way transactions are handled. Plus, there seems to be a commitment to integrating technology and humans for an enhanced experience.
The report incorporates data from more than 300 senior executives at the World Bank. The main findings include:
- 65% of bankers believe the agency-based model will be “dead” within five years, up from 35% four years ago.
- 81% of bankers believe banks will look to differentiate themselves on customer experience rather than product and location.
- 47% of leaders of financial institutions expect their activities to evolve towards digital ecosystems over the next two years, in partnership with banking and non-banking third parties.
- 65% of financial institutions see new technologies as the main driver of change for the next four years, up from 42% three years ago.
Is the branch-based banking model inherited from the pandemic doomed to fail?
The exodus of customers using physical branches began long before the pandemic, with consumers of all age groups embracing digital alternatives to save time. While not all digital experiences have been simplified to the extent necessary to compete with fintech and big tech players, the pandemic has accelerated the trend away from physical engagement.
In the survey conducted in early 2021 by the Economist Intelligence Unit (EIU) on behalf of Temenos, just under two-thirds of bank executives agreed that the branch-based model would be “dead” within five years. This is a dramatic increase from 59% last year and 35% in 2018. While an overhaul of the agency-based model does not necessarily mean that all agencies will be closed, this trend reflects the impact of digital financial alternatives provided by both and non-traditional competition.
The conviction of bankers that the traditional physical distribution model is under threat is a reflection on how the consumer has responded to the pandemic in all sectors of the industry. As people have become more comfortable with smart digital engagement in retail, entertainment, hospitality, travel, and even restaurant services, the search for digital alternatives to traditional financial services is growing. ‘is developed. The result has been an influx of fintech startups, new payment alternatives, improved delivery of deposit and loan products, and super app platforms from tech giants driving new business models from traditional banks. .
The future includes differentiation on experiences
Traditionally, banks and credit unions have responded to the influx of new digital banking alternatives by trying to reduce internal costs. The reality was that these improved cost structures could go no further and would never match the low cost of operating a digitally-driven fintech operation.
Today, many more organizations have realized that the consumer looks for value in every business relationship. In other words, most are willing to pay a little more for a great experience (which is why Amazon is able to charge over $ 100 for Amazon Prime). This has led more financial institutions to prioritize the delivery of exceptional experiences.
Financial services executives around the world said their top priorities were improving the customer experience, mastering digital marketing, shifting engagement to digital channels, according to the EIU study. and improving product agility as the top priorities in the future.
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Building a digital ecosystem will require the collaboration of third parties
Since the majority of traditional financial institutions are not structured to become agile digital players, many have chosen to collaborate with established FinTech providers and / or third-party solution providers that can accelerate the digital transformation process. By avoiding the “detours” that can occur when building from scratch, banks and credit unions can become more nimble and lower their costs as well. These collaborations can also help redesign back office processes and operations that create barriers to delivering fast and easy digital solutions.
According to the report, 38% of banks innovate by investing in (25%) or acquiring (13%) fintech startups, while 24% say they participate in sandboxes to test new proposals. Much higher numbers are building enhanced experiences with the help of specialist solution providers.
The upshot of this focus on agility and expanding digital capabilities is that nearly half of those surveyed expect their business to evolve into true “ecosystems” over the next two years. Beyond simply providing financial services, many organizations see themselves as part of a larger solution set – participating in or leading the development of a “super app” platform. The study also found that 31% said they are taking advantage of open banking initiatives, giving customers the option to connect their bank details to third-party providers.
Focus on technology
With the need to deliver an enhanced digital experience high on the agenda within traditional financial institutions, leveraging new technologies is viewed by 65% of respondents as the trend that will have the greatest impact on financial services across the country. over the next four years. This is an increase of over 50% from the percentage of financial institutions that responded in this way just three years ago. Executives also believe that regulations regarding new technologies will also have a major impact on businesses, while changing customer behavior is expected to have a much smaller impact.
Interestingly, just over a quarter (27%) of survey respondents say they are focusing their investments on cloud technology despite the fact that 59% believe bank-owned data centers may no longer be relevant. It is a difficult paradox to explain.
Technology, innovation, collaboration, and an overhaul of traditional banking business models will all be needed to achieve competitive differentiation in the future. There will be a continued (if not heightened) threat of disruption from smaller FinTech companies and larger digital platform providers as the consumer demands even more from financial institutions. The question will be whether traditional financial institutions can respond to these threats with the speed necessary to be successful?