Digitize or die: retail banks challenges in an increasingly digital age

The discussion about the future of retail banking and banks in general is gaining momentum. In an article on The Guardian (The Observer) website, Jill Treanor looks at upcoming announcements in the UK. And there are many challenges ahead in other countries as well.

The “digitize or die mantra” in the retail banking industry is not just about branches but also about behind-the-scenes processing – what KPMG’S Bill Michael calls “dinosaur infrastructure

In the article, with a title that leaves little room for interpretation, “Digital revolution presents banks with more change in 10 years than last 200“, Treanor analyzes (upcoming) warnings from several banking industry leaders regarding the challenges that deeply impact their results and workforces.

On top of the challenges regarding regulation, compliance demands and the economic context, the warnings and challenges are about the struggle with the internet age, digital changes/evolutions and customer preferences/attitudes in a time where branches get closed and/or transformed and FinTechs pop up across the globe.

Bank concept

Adjusting to digital evolutions and customer demands

Treanor sums up some data that partially show these evolutions (from the British Bankers Association or BBA): each single day, £1bn of transactions are done via mobile and internet banking. Over 15,000 people download a banking app each day in the UK.

Any discussion about the future of retail banking leads to the basic question whether future customers will still need retail banks

Furthermore, since 2000, 2,359 high-street branches have closed. Are all the closures, job losses and the ones that are expected to be announced in the very near future all due to digital evolutions? Certainly not, even if the slowness to adapt plays a key role. And banks know it. Treanor gives the example of Barclays, that announced 1,700 job cuts last year, blaming the fact customers visit their branch twice a month, while using mobile services 18 times a month.

We can’t underestimate the impact of the so-called digital behavior change of customers and on the workforce, both in the ways of working and indeed in staff reductions. We can’t ignore the need for digital transformations in virtually all industries. We can’t say no to the key role of customer experience optimization.

Digital transformation in banking is about shifts in the core business models, customer interactions, business functions and the very role of the bank within a changing ecosystem.

Digitize or die – on all levels?

The fact that the industry faces more change in the next 10 years than in the past 200, is about more than digitization and optimization.

Since 2000, 2,359 high-street branches have closed in the UK

The changed customer attitudes and digital evolutions are not going to go away anytime soon, well on the contrary. The article cites some examples of how banks are adjusting to these realities (including plans embracing technological advances and transformations in and outside the branch) and cites Bill Michael from KPMG that the “digitize or die mantra” in the industry is not just about branches but also about behind-the-scenes processing (“dinosaur infrastructure”).

Optimize to innovate and grow

Facing other challenges (regulations, the economy,…), the heat is on for retail banks to cut costs, optimize efficiency and at the same time update infrastructure and go through serious digital transformations. And of course these challenges don’t just affect the UK.

As I write this, Reuters announces that 25 of the euro zone’s 130 biggest banks, failed the stress test of the ECB (European Central Bank). The challenges for the industry aren’t over in several other regions too.

So, what’s new here? We mentioned the back-office and infrastructure challenges in retail banking before. We looked at the multiple digital and omni-channel challenges in the financial services industry. We know direct and digital channels are rising steeply in retail banking. We know how mobile is impacting all industries, including financial services and banking. We see the disruptions.

Will future customers still need retail banks?

But the challenges are even more profound. Digitization and meeting expectations of digital customers is not an option in today’s context. However, it needs to lead to a higher goal, creating jobs instead of cutting them and working through major transformations beyond technology.

58% of retail banking executives expect to acquire 2% more customers via digital channels

IBM describes it well in a paper, “The paradox of Banking 2015 – achieving more by doing less“. Any discussion about the future of retail banking leads to the basic question whether future customers will still need retail banks. And the answer to that question, will to a great extent depend on banks themselves and on their ability to innovate and offer the right services for the right people in the right markets. Or in other words: by offering what today’s and tomorrow’s customers want and preparing for the changed speed of business and evolutions in an industry that still has many opportunities to evolve, putting it mildly. It will also depend on how far we really can go with all the connecting and digitalization possibilities from a regulatory viewpoint, from king customer’s perspective and from the point of acceptance and utility.

With 58% of retail banking executives expecting to acquire 2% more customers via digital channels, tackling the challenges of the omni-channel customer, regulatory pressure, fragmentation and bridging IT systems to optimize efficiency and improve customer responsiveness and customer experience is crucial.

And in this digital context, it’s clear that data are essential to make it all happen.

Disrupter or disrupted? The retail bank of tomorrow

Sure, the challenges are not easy and services and models can be replicated, with differentiation being another challenge.

However, if customers redefine the rules of the game as both IBM and the article in The Guardian mention, what else is there than becoming customer-oriented disruptors, testing and embracing totally new approaches and services, instead of following customer trends and being faced with disruptive models?

Maybe the retail bank of tomorrow looks like a FinTech start-up where innovation, digital leadership and a customer-intimate culture rank high, once the inevitable stages of process optimization and digitization, ‘en route’ to becoming leaner and utterly customer-oriented are achieved, with value, customization and relationships key, depending on the context of the customer.

Or maybe we’re evolving to a collaborative and hyper-connected digital and physical (hybrid) banking approach. Or maybe it’s digitize or die all the way. Or maybe banks will again open branches as I’m sure some will do. Or maybe…who knows?

The omnichannel and mobile behavior aspect in the digitize or die mantra

In the meantime, also Oracle wonders if it is too little, too late for retail banks in its Digitize or die infographic.

59% of banking executives believe that in 2020 payment providers will be bigger threats for them than traditional banks

The mantra indeed keeps being repeated in all possible industries in many variations as you can read in our interview with Paul Scott of Dimension Data where ‘Digital or Die‘ is the mantra in contact center evolutions and was also the title of Paul’s presentation at the Customer Contact Expo in London 2015. What both have in common? Omnichannel is certainly one aspect.

According to Oracle 59 percent of banking executives believe that in 2020 payment providers will be bigger threats for them than traditional banks.

With a focus on the broad generational cohort of Millennials (too broad really) as the shaping forces of the changing expectations from and challenges for retail banks the Digitize or Die infographic below, based upon 2015 research from Oracle confirms what is at stake in this omnichannel reality with special attention needed for digital onboarding which of course depends on many aspects such as the local possibilities available on the front of digital signatures, recognized mobile onboarding technologies and so forth, all areas that will become far more widespread in a near future.

The omnichannel customer is coming, he/she wants options, mobile is key and on several fronts Digitize or die might indeed just be the reality.

Digitize or die - Oracle retail banking infographic - source and larger version Oracle
Digitize or die – Oracle retail banking infographic – source and larger version Oracle

 

 

Top image: Shutterstock – Copyright: agsandrew – Silo image: Shutterstock – Copyright: yexelA