By Rajashekara Visweswara Maiya, VP, Global Head – Business Consulting, Infosys Finacle
From pandemics to politics, we live in extraordinary times. Focusing on technology, we find that in less than two decades our collective experience of digital interactions has transformed beyond recognition, fuelled almost exclusively by smartphones.
More than any other device, smartphones have enabled the digital revolution and raised users’ expectations. To a large degree, progress has been driven by cross-fertilisation: features offered by Airbnb and Amazon today might turn up on Teams tomorrow. Since all business users are consumers, and most consumers are business users, all demand similar ease-of-use and continuity of experience.
At a more fundamental level than the screen experience, smartphones and their ubiquitous connectivity have shifted power from providers to purchasers. For example, I might start browsing while traveling and continue when I arrive home – and maybe switch to a laptop or iPad. Retailers in particular go to great lengths to create continuous, streamlined journeys, and multichannel has become an integrated omnichannel experience.
The banking context looks very different, partly owing to history. For example, the earliest ATMs did not interact with back-end systems in real time, and the ATM balance would not match the online or in-branch balance. Banks developed very successful multichannel services, but struggled and often continue to struggle with the omnichannel experience.
Users, however, expect more, which created opportunities for FinTechs. With a clean technical slate, FinTechs built a (mostly) seamless and frictionless omnichannel experience. More than anything, user expectations dictate the direction of travel, and put pressure on banks and FinTechs to deliver.
As power and control moves increasingly towards the individual user endpoint, the distinctions between retail consumers, sole proprietors, partnerships, and corporations will tend to blur. For example, services that were formerly only available at corporate level are now available to any user with the same device.
Faced with these changes, banking cannot afford to fall behind. In 2000, around half of all banking transactions took place in branches; in 2020, more than 90% of banking transactions were completed through non-branch channels. In 2030, some forecasters predict that more than half of all financial transactions will be through third-party channels, outside the banking ecosystem. Apple Pay, Google Pay and PayPal have been joined by Meta Pay and WhatsApp – and who knows, Twitter-Pay next?
This cross-industry relativism shows how quickly users become accustomed to convenience, and expect a similar experience in banking. The one-click ease of Amazon and Netflix has normalised across every service, from hotel bookings to electricity suppliers. How could it be possible to complete the equivalent of a one-click payment, or one-click deposit?
The tailwind to change is the shifting regulatory landscape. The EU Payment Services Directives 1 and 2 significantly increased pan-European competition, particularly from challenger banks and FinTechs. In many ways, regulators are driving, directly or indirectly, the type and range of user experiences.
The threefold combination of empowerment, convenience, and regulation produce a heady mix, where users feel free to swap banking provider at the tap of a screen.
However, banks’ services tend to be product-led, based on infrastructure and processes that were designed decades ago to support single-purpose functions. For example, the deposit, payment, trade finance and multiple other products rely on separate systems, with dedicated management and support teams. While banks have made huge strides to integrate disparate legacy solutions, integration is not the same as omnichannel, which delivers the streamlined experience.
For example, if the customer intends to buy a property, then the traditional response is to suggest a series of banking products, such as mortgages and insurance. The omnichannel approach means creating solutions that focus on serving the customer’s journey, from property search to finance to legal and beyond.
Low touch, high engagement
Bringing multiple components together, in effect re-creating the presentation layer for customers, is not a simple task for traditional banks that are branch- and product-led. There is no role for a branch in omnichannel, and products are secondary to service.
Digital-native banks, including the European FinTechs and many of the successful challenger banks in Asian economies, have built very effective low-touch, high-engagement omnichannel experiences. The strength of the digital-only relationship enables these banks to dispense with the cost-heavy branch infrastructure without the fear of losing customers.
Transitioning a traditional bricks-and-mortar bank to online presents significant strategic and operational challenges. The new digital experience must be fully ready before physical access is eliminated, which in turn means carrying the branch costs while investing in application modernisation and digital transformation. During that transition, executives must balance the two investment streams, to maintain customer loyalty and simultaneously redevelop banking operations.
As an aside, banks may also reconsider how to measure the time and attention devoted to every customer. From a personal interactivity standpoint, banks are moving toward low-touch interactions, where technology enables sophisticated self-service. In essence, low-touch reduces the time per customer, a key way to improve productivity. But from the customer perspective, low-touch omnichannel technology creates a highly capable environment that fully meets their needs without time spent explaining issues and completing transactions in person. Digital banking removes transactional frictions, and – from the customer perspective – can deliver extraordinarily high service.
Gang of Four
Four main players combine to produce this emergent digital landscape: banks, retailers, cloud service providers, and software platform providers.
For some years, retailers have been perceived as the biggest threat to banking, and there remains no doubt that supermarkets, eBay, and Amazon have created impressive omnichannel capabilities. Similarly, cloud services providers, a crowded category that includes Azure, AWS, and Google as well as a myriad of telco and broadband operators, are shaping our collective expectations of connectivity and capacity. Software platform providers are likewise part of the technology infrastructure, delivering advanced solutions that enable the banks’ operations.
Fortunately, banking domain expertise remains an exclusive stronghold, and even retail giants have found it difficult to gain market traction. But as well as domain expertise in this highly regulated industry, banks are often also heavily invested in technology that could easily be delivered more efficiently by the cloud and software partners.
For example, by moving to cloud-based services, banks could re-focus on innovation and dispense with a significant part of the cost base. In the same way that branch operations – with associated property maintenance, capital, and management costs – can be removed, banks can eliminate expensive on-premises systems and reduce in-house development costs by switching to the as-a-service offerings from software platform providers.
In addition, cloud infrastructure and modern software offerings have been built with capacity and speed in mind. For example, in India alone Finacle software processes around 7.5 billion transactions a month, forecast to grow at around 50% CAGR – that is, more than 20 billion transactions a month by 2025. By partnering with software and infrastructure experts, banks are free to cultivate their domain expertise and to create outstanding omnichannel experiences that will attract and retain future customers.
Personal experience, future loyalty
Just as smartphones have put power in the hands of the user, cloud and modern software solutions have handed power, capacity, and flexibility back to the banks. The personal engagement delivered by online retail giants are now in reach of omnichannel banking, through shaking off legacy systems and embracing digital transformation. As low-touch, low-cost, branchless banking becomes the new operational model, the right technology strategy will also make it possible to create high-value experiences that will retain today’s and attract tomorrow’s happy, loyal customers.