The first decade of the 21st century saw a financial crisis that led to the extreme regulation of the banking industry by central banks and other government authorities. This caused banks to institute over-complex systems, aimed at integrating the needs of outdated and outmoded business models while catering to the mores of current regulations.
Investment was pumped into back office operations and systems to meet regulatory requirements, usually developed and managed out-of-house. This left the business models of most financial groups focused on regulations, rather than on customer services and online features and usability. Nowadays, the release cycles of new functionalities teeter along at the same languid pace, as do developing new products and functionality for online services.
The enterprise core banking systems designed in the late ’80 and early ’90s are inflexible and non-customer-centric. They ignore all the basic principles of customer service: core functions and internal process workflows are highly limited, and require expensive enhancements from vendors – who work in long four-five week delivery cycles for new features. This state of play is not constructed to please the customer.
New banking models will become essential for family banking, wealth management and corporate provision. The new paradigm of customer behaviour is a creative digital business model for retail and corporate banking. Business and public social networks, e-commerce and payment platforms are setting new benchmarks for speed, agility, and are user-oriented. Nowadays both consumer and corporate client segments expect similar online performance from banking authorities like existing online services.
The convergence of new customer demands with technological advancements has now unlocked numerous opportunities for banks to transform their business models to deliver financial services that are friction-free and convenient, relevant to the context and the needs of the customer.
Today banks offer a vast number of products, with each adding to the complexity of their business and operational costs, functional duplication, and redundancy. As banks recognise the growing customer appetite for flexible, convenient services, they are beginning to ‘unbundle’ these products and provide them as services, which are modular in design, transparent in pricing structure, and can be used by customers in accordance with their preferences and context. Services might include account opening, account closing, payments, loans and cards, among others.
Furthermore, with the forthcoming legislation that will open up banking systems to public APIs, customers will be able to link outside services (anything from Paypal to personal loans, social networks and family banking) to their accounts to complement and/or substitute for services offered by the bank. The resulting financial services ecosystem will provide an optimised and integrated banking experience for the customer and new revenue sources from upselling and cross-selling for the providers of financial services.
Peer-to-peer payments will continue to gain momentum, as they offer low transaction costs and can operate directly from mobile wallets, accessible through smartphones, without the need for a traditional bank account.
P2P lending will follow a similar trend. By automating the labor-heavy process of accumulating data on potential borrowers from various sources, AI systems can assess the creditworthiness of borrowers more cheaply and efficiently than a comparable bank’s service. This allows lenders to earn a higher rate of interest and borrowers to pay a lower rate, while making ‘peer’ loans faster, easier to secure, and more affordable.
The success of various players in the financial marketplace will be determined by the sole merit of best satisfying a particular customer need. The financial services ecosystem will evolve organically as fintech companies fill the gaps where customer needs are not being served as efficiently by the banks.
Increasing importance will be given to designing rich, omni-channel user experiences with more points of contact with clients, where customer-facing channels–mobile apps, web sites, and social media – allow the customer to initiate a transaction or a service in one channel and complete it in another, while having the same experience on any device or a branch. Moreover, these channels will enable context-based marketing campaigns and service offerings to be integrated directly into messaging apps and social platforms.
Transaction processing will become almost entirely digital. The role of branches will be redefined to encompass providing information, education and advice. In-branch advisers will use the same interfaces as the customers and offer ‘assisted self-service’. Integrating branch and digital services will allow banks to have a unified business process management system. It will then be possible to apply AI and machine learning to these processes, determine the patterns which lead to the most successful outcomes, configure systems to mimic this performance, and continue to improve the quality and efficiency of customer service.
The use of a payment hub will become universal as a platform to integrate a bank’s own payment services with all types of digital channels and payment systems while reducing the cost of payment processing. It will allow customers to pay without entering any payment details, to define the routing of transactions to different payment instruments, and to set operational limits and authentication rules for each type of transaction and for each channel.
An important role in tackling data privacy and security concerns, as well as making transactions more seamless, will be played by the biometric authentication technology–voice, face and fingerprint recognition. This will limit authentication to a single action and set our minds free from the burden of keeping track of multiple changes to an increasing number of passwords.
Telephone banking will cease to feel like an interrogation, with immediate voice recognition, saving much time and human resources on the bank’s side and frustration on the side of the customer.
The four musts
Going forward, financial services firms will require robust capabilities in four areas to survive:
- Digital-product innovation - capable of changing customer expectations.
- The ability to provide good banking applications for end-clients to provide a seamless multichannel (experience so end users can move effortlessly from one channel to another.
- Predictive analysis and advanced analytics to understand customer needs and next actions, steps better.
- As strong back-office which can cope with automating operations and digitising active cross-selling business processes to enable fast response times to customers while cutting operating waste and costs
Banks have developed excessively complex and costly operating models. As new alternatives are becoming more mainstream, it is clear that the most successful banks will redesign the core processes from a customer point of view, provide intuitive, context-based digital services, and harness customer data using AI and machine learning. They will embrace the social aspect of today’s economy, serving communities by mass-customising services, giving customers options, and connecting them to each other. Both corporate and retail customers have a brighter future ahead, and services which are much more geared to their needs than they have been for years.
Andrii Mykhalniuk, Solution Architect, DataArt
Image source: Shutterstock/MaximP