Bank architects of the last few decades used branches as those foundations, but today you would want to use IP infrastructures
Every financial institution today is looking at digital transformation to meet rising customer expectations for speed and convenience, lower its operating cost, and fend off competition. The covid-19 pandemic has revealed how even financial institutions that considered themselves digitally advanced are, in reality, still wedded to analog processes along the chain of processing. To understand these core issues, let me tell how traditional banks differ in core than new age “Digital Banks.”
Everything from taking deposits to giving loans was the banks’ domain, and they were organised to do just that. As a result, most banks created operations based around products: money transmissions, mortgages, cards, loans, insurances, etc, and these were delivered through one channel, the branch.
Retail banks have a historically strong branch network. They added ATMs in the 1970s, call centres in the 1980s, the Internet in the 1990s, and added mobile in the 2000s. Each channel is added as an extra layer on the foundation of the branch distribution cake. Branch networks are the foundations, whilst electronic distribution is the cream on the cake.
When the era of the Internet popped, at first, banks thought this could lead to branch closures and started to invest heavily in moving from branch to Internet services. However, the underlying data was still held in product silos, and the Internet was not responsive to customers’ views of the world”. Using middleware, fudge, smoke, and mirrors, the banks were able to get the job done. Then came this perfect storm of cloud (a large number of computers connected through a real-time communication network such as the Internet) and Big Data, augmented by customers tweeting and socialising 24/7, and most bankers went shell shocked and didn’t know to manage the synchronization of data across so-called channels they had created. The bank couldn’t leverage data; it’s locked in product silos. Banks layered channels over products.
“You cannot restructure a bank around customer data if that data is locked into legacy systems that are product siloed and channel handcuffed.”
Retailing has moved from selling products or services in stores to using the stores as a method of building a sense of community around. The issue today is that branches were not designed for this purpose. They were designed to look after money and process monetary transactions. They were designed to handle physical forms of cash and cheques as secure transaction centres.
This is the core reason why everyone thinks that branches will disappear because they are not retail stores, engaging the brand community, but instead transaction centres run like some administration process.
Hence there will always be a gap between what the Fintech’s are offering and traditional banks.
First things first, realizing there are no channels. Just everyday lives that are highly digitized for the 21st century. Stop talking about multichannel, or omnichannel, but have a laser-focused strategy of how to deliver augmented service to the customer at the point of relevance. For me, that is a digitised delivery of service, proactively via my mobile today. Traditional banks will have to take enough bold steps and really create 3–5 year vision plans to make decent changes. They will have to fail fast and realign their strategies to survive the next onslaught of digitisation.
As Thomas Edison once put it, progress is measured in failures: each defeat rules out one possibility and brings you that much closer to the solution. On the one hand, that makes experimentation vital. On the other, it means that real progress is expensive, time-consuming, and ultimately risky.
It’s time to think about banking as an electronic structure. It’s time to bite the bullet and admit that retail banking is not a physical distribution structure with electronic channels on top but, instead, an electronic distribution structure with electronic and physical channels on top. It’s time to become and think like a Digital Bank.
As banks design their new generation Digital Bank, the starting point has to be customers and employees.
Remember — Mass personalisation can only be achieved by offering contextual servicing to each and every customer at their point of relevance. This means analysing exabytes of customer data to identify, on a privacy and permissions basis, what contextual service customers may need as they live their lives.
Digital networks are the starting point, and then build the endpoints on top, including bank branches, will be much nearer the right strategy for the future.