Digital banking. Are Indian banks ready to make the ‘digital-first’ transition?

The 21st century will be remembered as the age when digital technology transformed our society in arguably the same way as the industrial revolution, and electricity, defined progress in previous centuries.

The advent of smartphones, cheap cloud computing and advances in telecommunications, among others, have revolutionised how organisations operate and deliver services to consumers. The likes of Amazon, Netflix, Uber and Airbnb have demonstrated how a digital-first model can transform traditional industries like retail, media, mobility and hospitality. They have already created commercial success by leveraging technology to create superior customer value. However, the answer to the question “Are banks ready to make the digital transition?” relies on their ability to create better customer experiences and higher operational efficiencies using technology.

To visualise what a digital future might look like for banks, let’s define the different levels of maturity that they need to achieve to be leaders in this digital-centric world.

Time to strengthen digital banking

What does a digital-first future look like for banks?

At a basic level, banks need to provide access to their services via mobile/web efficiently. In retail banking, this would imply providing not only basic services like checking balances and making payments, but also more complex transactions like mortgages and lending, without manual intervention.

The next level of maturity would be the ability to innovate on products and services using digital. This would include leveraging in-house and third party data with consent to personalise their products and services. For example, proactive steps like taking action to help a customer in financial distress or offering a bespoke loan/mortgage offer during the purchasing journey. Similarly, other levels of innovation could include offering more attractive services like ‘Buy Now, Pay Later’ or through exclusive partnerships.

To achieve digital leadership, banking firms also need to continuously drive such innovations at speed to meet evolving consumer needs in a competitive landscape. That’s why agility is such a fundamental requirement for digital leadership.

Neobank Fi partners with Federal Bank to open instant savings account

How are banks faring in their quest to achieve this high level of maturity?

Based on responses from over 1,000 banking executives globally, a recent Global Banking Benchmark Study by Publicis Sapient found that only 40 per cent say that they have made significant progress in meeting their digital transformation goals.

The large customer/geo footprints and diverse product portfolios are available advantages that incumbent banks can use to establish a leadership position with their customers. Most banks have made great progress in areas like providing customers with a robust mobile platform to access basic banking services. We’ve also seen innovative products like HSBC’s global money account and Citibank’s global wallet that leverage their global liquidity positions to offer a competitive multi-current account to their expat and more global customers.

However, more needs to be done to achieve this digital-first model across the entirety of their business. Complex transactions like getting a mortgage or taking out a secured loan are still not digital-enabled. Besides, the degree of automation for back-end processes is still not high as evidenced by the high cost-to-income ratios of most incumbent banks.

What’s holding these larger incumbents back?

The Global Banking Benchmark Study lists lack of investment in skills and technologies, the pandemic, and the change in culture, as some of the barriers for banks to progress. However, in order to overcome these barriers, banks need to look at the underlying issues creating this organisational inertia against change. The strengths of incumbents around the size of their customer base and the strength of their capital position can also create additional complexity and regulatory scrutiny that slows progress. Conflicting priorities like how to modernise while balancing the need to maintain existing legacy; how to enforce a strict control regime while continuing to increase agility or, how to strike the right balance between investing in human capital versus automation can create competing priorities that make transitioning to a digital future more difficult.

So what’s next?

The good news is that this inertia can be overcome. The pandemic has shown that with a strong imperative, incumbent banks can move incredibly fast as most did to support their customers with no access to branches. Additionally, there is a huge opportunity for banks to leverage the full power of technology to create unmatched customer value. By defining a clear strategy and a will to overcome this organisation inertia via the right incentives and operating model changes, banks can create a digital-first future that will benefit both customers and shareholders.

The author is Group Vice-President - Technology, Publicis Sapient

COMMENT NOW