Expert lists ways banks can remain competitive in digital age

Banks and other financial institutions have been advised on seven ways to remain competitive in the face of the digital and fast-changing times.

They include to update their core banking software, take advantage of new artificial intelligence (AI) and machine learning (ML) developments, focus on digital customer experiences, be more proactive on social media, improve connectivity across the whole bank’s system, migrate data to the cloud and rethink the purpose of brick-and-mortar locations.

A technology expert and analyst, Joyce Olegario, who gave these tips in a position paper, noted that banks all over the world are facing an array of threats and opportunities from current trends in digitalisation and digitisation.

She said those that adapt to this new era of finance have much to gain in terms of scale, reach, customer loyalty and revenue.

According to Olegario, updated core banking solutions are essential for any financial institution that wants to significantly scale its operations.

With the sheer amount of data coming from potentially millions of sources, it is getting increasingly hard for humans using older software to turn this information into anything useful, she emphasised.

Software developers in this space are now coming up with tools that use highly advanced machine learning to significantly reduce the load on humans using the software.

“What this essentially means is that banks can more easily scale up their operations without having to increase human labour inputs or sacrifice the overall customer experience.

“Artificial intelligence and machine learning also have applications in other areas. Banks can use them to deliver round-the-clock customer service, empowering customers and allowing banks to reserve smaller teams of human customer service specialists for more complex cases.

“This can result in a much more pleasant overall experience for customers since they no longer have to use services at specific times or wait through long queues,” she further observed.

Olegario believes that a growing proportion of customers are now interacting with banks primarily through mobile and desktop apps.

In many cases, customers no longer even have to visit a brick-and-mortar branch to open an account. Even customers who set up bank accounts through physical branches would now typically use mobile and desktop apps for a high proportion of their transactions.

She said, “Given this quality of user experiences from the banking apps, customers can have a major impact on their perception of the bank’s services, influencing their loyalty to the institution.

“For this reason, banks should constantly strive to make improvements in the usability, security and overall quality of their mobile and desktop applications.”

She also drew attention to social media which provides banks with a unique opportunity to cultivate more fulfilling, longer-lasting relationships with customers.

Apart from simply being a venue for banks to roll out advertising and marketing campaigns, social media platforms can be a source of valuable feedback and social proof, she said.

To facilitate this, customer relationship management (CRM) platforms need to be able to integrate with the bank’s social media accounts.

She said better integration would allow banks to effectively scale their social media efforts and synergise them with other CRM projects over email, SMS and traditional channels.

A better-connected bank offers a more cohesive experience for customers regardless of where or how they interact with a bank, making it easier to develop long-lasting relationships, according to the analyst.

All systems within the bank need to be better connected as well if they are to compete in the digital age. Better connectivity prevents duplicated effort, increases transparency, and speeds up processes without sacrificing productivity or customer experiences. To facilitate this, banks operating older software solutions may want to consider upgrading to integrated all-in-one finance ERP solutions for their future core banking needs.

She also advised that Software as a Service (SaaS) or cloud solutions offered by third parties are now very much a mature technology solution, offering better uptimes, data security and convenience compared to most traditional onsite setups, usually at a much lower cost.

Having data on the cloud also removes the need to have a large team of finance IT specialists to maintain the whole system. While there may be a need for some banks to have a small internal finance IT team, it is now possible to offload most of the work to highly specialised third parties that, through service level agreements, guarantee better reliability than any bank could manage by themselves.

Olegario said brick-and-mortar locations are no longer strictly necessary, as proven by a growing number of purely digital banks. The number of bank locations in the US has declined by 11.5 per cent since 2009, according to a report by Forbes, a trend that accelerated in the wake of the COVID-19 pandemic. However, that does not mean that these physical locations no longer have any use in the digital age.

Of course, traditional services such as safety deposit boxes, real-time wire transfers, getting cashier’s checks, and notary services are all going to be faster and make more sense in brick-and-mortar locations.

Her words, “Well-situated branches can be repurposed into customer service centres that offer bank customers assistance as well as in-depth education on the bank’s products and current fintech trends.

“Bespoke financial services could also be offered more easily through these locations. These locations can also serve to humanise the bank’s services and cultivate deeper customer relationships in key areas.

“Developments in banking software, customer preferences and machine learning have given smaller, more nimble banks an opening to compete with the bigger players.

“By leveraging new tech and rethinking the role of banking in people’s lives, smaller financial institutions now have a viable way to capture a sizable piece of the action.”