In its simplest form, digital banking is allowing us as customers to engage with banks on our terms, and allowing banks to service us in a much more efficient way – a win / win for both sides of the relationship.
Banks are spending billions of £’s in a pseudo arms race to develop and / or acquire the digital capabilities that allow us to access our accounts at any time and enable them to work in a more agile, responsive and cost-efficient way. These two objectives are being heralded as the pinnacles of successful digitalisation and the winners and losers are being measured based on progress towards them.
Although there is no doubt that developing better customer experiences and establishing greater operational efficiency are fundamental to unlocking the power of digital banking, we believe that they merely represent a means to a much more significant end, and that those who view them as ends in themselves are really missing the point.
What are banks doing?
The glamourous race (and the only one visible to us) is taking place in the expansion and enhancement of digital channel capabilities. As customers, we see this on a daily basis in the form of new apps, online portals, biometric authentication, transaction categorisation and everything else interesting and cool that we associate with day-to-day banking. Banks are trying to combine innovative new features with simple and frictionless designs to create experiences that take some of the hassle and tedium out of engaging with them.
The other race is taking place in the world of business analysis and enterprise architecture, and is focused on rebuilding core operational processes to enable the development of end-to-end digital experiences. As customers, we have no real idea that this race is going on (and if we do it’s often because something has gone horribly wrong). This race is focused on things like automated customer decisioning, data lakes, real-time transaction processing and a whole host of other things that 99% of customers have no interest in. Banks are trying to digitalise back-end processes to ensure they can support the real-time interactions that are initiated through digital channels in the most efficient way possible.
The short answer is ‘no one’.
Currently, the winners and losers in these two digital races are being determined by some pretty simple metrics: the volume and experience of customers engaging through digital channels and the cost efficiency of operating models. When viewed in isolation, or as a combined set of digital KPIs, there is no doubt that strong performance in these areas is nothing but beneficial to customers and banks. However, although there are many examples of new market entrants and high-street banks that are performing well against these metrics, we do not think that any of them can be classified as ‘winners.’
Digital banking has the opportunity to achieve something far greater and only the banks willing to measure success against this higher objective can ultimately be badged as ‘winners.’ Digital has the opportunity to repair the underlying mistrust that taints relationships between us and our banks, and it is this that must be considered the ultimate objective of digital banking.
For the first time since banking was a relationship-based business that was carried out in local branches through face-to-face interactions (something that is alien to a number of generations that form the most influential customer groups in banking portfolios), banks have the opportunity to re-establish a trust-based relationship with their customers.
Digital allows my bank to understand me; where I go, what I spend my money on, what my living situation is, when I’m struggling with money management and how I manage these struggles, my financial relationships with people (dependents / influencers), the pressures and stresses in my life, what I’m interested in and generally who I am as a person. This understanding – captured, managed and analysed through digital capabilities – then allows my bank to develop propositions that are bespoke to me and my situation.
Think about it, imagine if you had to buy a present for a complete stranger and the only information you were given was 6 months of the data provided by answers to the questions above. Based on that (and a lot of analysis) you would be able to develop a pretty good understanding of that person and in turn get them something you think they might need, want or value. Digital gives your bank the capability to capture and analyse this information in real-time and use it as the foundation of its relationship with you – just like the personal relationships that existed between customers, communities and bank managers in the past.
Front and back-end digital capabilities are critical enablers of this understanding, but the re-establishment of trust in the customer / bank relationship must be considered the ultimate objective of digital banking. Banks must not allow their vision to narrow around these enabling capabilities and must focus on the bigger picture; using digital to right the wrongs of the past and show customers that they are committed to providing us with products and services built around our needs and wants.
In the coming months I will explore how banks can use their enhanced digital understanding to develop bespoke customer propositions that fulfil the financial and non-financial needs of their customers…