\\\'Digital First\\\' strategy: Banks redefine their relationship with customers

With the advancement of technology, from mobile wallet to social media, tablets and  'de-banked' digital consumer, one argues if banking is a place we go to, but something else we do. Bill Gates, former chairman of Microsoft, surprised many, saying, 'Banking is necessary, banks are not' while referring to financial inclusion and how technology may complement, in bringing banking services to the doorstep to the un-banked, or the poor. The Bill & Melinda Gates Foundation have ploughed US$ 65 million into the Alliance for Financial Inclusion (AFI), helping financial inclusion drive leveraging proliferation on mobile technology.
WHAT IS DIGITAL BANKING? The Royal Bank of Scotland has defined digital banking as 'banking on the move'. Hence, the essence of digital banking encompasses a few promises for customers like accessing balance, managing accounts and pay bills, becoming paperless - hence save and print up to seven years' worth of PDF statements - through iBanking, staying in control of standing orders and direct debits, transferring money, paying bills or people instantly, setting up a savings goal and keep a close eye on progress, and switching on text alerts to keep track of accounts on the move.
Digital banking is about how we can manage our money and interact with our banks. Today, three quarters of British banking customers use online/mobile banking at least once a month. Consumers are now demanding ever greater integration of financial services into their daily lives, as well as flexibility and control over money.
During its first month, every 7.5 seconds a user signed up for PayM (http://www.paym.co.uk), in the UK. With Near Field Communication (NFC), we expect to use just one device for our digital identity — accessing buses, trains, clubs, homes, offices and banking accounts.
Pundits are predicting that digital banking will enable seamless pricing and payment based on digital inputs! This means car insurance can be based directly on actual distance traveled and driving style; health insurance can be influenced by inputs from a digital wrist band and the provision of relevant offers, promotions and targeted financial services (e.g. unsecured loans), can be based on purchasing habits etc. It is further predicted that usage-based insurance will generate $50 billion in GWP (gross written premium) by 2020.
THE DIGITAL PROMISE:  'Digital Promise' is about far more than making banking mobile - it's about helping consumers to interact with their financial service providers when, where and, in the way that they choose.
The 'Digital Promise' should address the following three aspects:
1. Better household money management.
* The ability to check out balance;
* Updating of scheduled payments;
* Monitoring of recent transactions on demand;
* 24/7 services; and
* The popularity of this service is evidenced by the 7.0 million daily logins to internet banking services in the UK;
2. Seamless integration into daily life;
* Connecting with digital world through social networks and mobile apps;
* Facebook alone records 757 million daily logins;
* We now witness NFC tags on posters to smart watches, and personal health monitors; and
* Western corporates using LinkedIN vigorously, for job posting and candidate searching.
3. Bringing everything together;
* The average American has six bank accounts;
* This means six usernames/ passwords/ PINs;
* Many UK banks also provide a physical device or card reader to generate codes, for logging into digital banking, complimenting 2-factor authentication; and
* Fifty one per cent US adults or 61 per cent of internet users - bank online, 31 per cent US adults or 35 per cent of cell phone owners — bank using their mobile phones, according to Pew Research.
CHALLENGES FOR US: Banks observe increased pressure from customers who are traveling abroad, getting exposed to modern banking, and expecting similar services here. Customer loyalty is decreasing, as in competitive market, demand is increasing, and sizeable younger and internet-generation customers, who are going to expect reduced friction, and increasing flexibility in banking.
Even a few years ago, traditional banks in the western world, were challenged more than ever from a distribution perspective because of the movement to mobile and digital channels, and because they were not well positioned with their bricks and mortar networks, for a positive customer experience. Banks with its secure firewalls, operational structure and compliance mindset, find how any other industry engages with customers in the digital space. And banks themselves are having difficulty innovating, moving from the way they have done things in the past, using paper applications, signature cards, etc. to using web signatures and online authentication, predominantly in the digital space.
Mobile has started to change the context of banking, including where and how a consumer conducts business. For example, the process of buying a home and securing a mortgage is much different when the shopping for the mortgage is done online. Now we hear the Commonwealth Bank of Australia customers pointing their smartphone camera at residential properties to bring up property details, recent sale prices, and information on local neighborhoods. The obvious question is why CBA has this smartphone app? Well, it's a most convenient way for their customers to get an insight into estimated monthly payment amounts on CBA mortgage loans and insurance. The app covers 95 per cent of residential properties in Australia, and averages 20,000 property searches per week. The DBS Bank, which is 29 per cent owned by Singapore state investment company Temasek Holdings, wants to be along with customers even as they think about buying a property, and with its Home Connect, one of the 19 mobile apps the bank has to date, is just a start on what the DBS plans to offer over the next couple of years to meet the shifting demands of younger customers.
Today, consumers are demanding services in ATM that they get on a tablet. One argues if this growth in tablets may force banks to build enhanced customer experiences across all channels. Today, social media is impacting banking in a couple of ways, including servicing and social dialogue. Customers are increasingly expecting to be able to reach their bank regarding service issues using Facebook or Twitter, and get a response immediately.
THE PARADIGM SHIFT: Brett King, CEO of a boutique consulting in Australia, argues, "We are trying to understand the entire journey a customer takes, and where our value is.  For example, what percentage of your mortgage product do you sell through the branch or Call Centre?" Michael Weeding of Citigroup points out that the successful brands of tomorrow will work out how to facilitate conversations about their brand in social media. "The world is changing very fast. Big will not beat small anymore… It will be the fast beating the slow", Rupert Murdoch predicts.
All this is happening at a time when we observe a staggering 90 per cent of the daily transactions across the globe executed electronically, and when Internet, ATM and iPhone Apps are no longer treated as 'alternative' channels. When social media tools, run by the younger generation, spread negative buzz around outmoded banking practices, cheques are likely to be phased out in most developed economies in next 5 years, and Mobile Banking via app phones will represent the fastest-growing banking channel.
Branch visit has already started to decline further, as time-poor customers struggle with the demand on their schedule. Today, we hear the next generation customers do not see the need for KYC compliance based on physical paperwork, or cannot spare time to visit branches, and customers want to use all the 'channels' their way, not banks' way. Hence, the financial Iindustry is at a cross-roads - increased pressure on achieving high growth and profitability targets.
Thanks to timely and bold steps taken by our central bank, Automated Cheque Clearing (BACPS) and Electronic Funds Transfer (EFT) have been implemented successfully, CIB has been automated, and National Payment Switch (NPSB) Implementation is ongoing, and Real Time Gross Settlement (RTGS) is being planned for 2015.
We are observing three phases of customer behaviour disruption due to innovation in technology, namely, i) internet (.com) that gives us choice and control, ii) mobility  anytime and anywhere, and  iii) mobile, through which payment gets us cashless.
So banks need to find multiple customer touch-points, through a customer value innovation process, to reduce attrition, and foster growth. Banks may ponder on appointing Chief Innovation Officer who should strive to make customer connect. Most banks in Europe have already appointed Heads of Digital Banking.
Adopting a 'Digital First' mindset - putting digital at the heart of the business - is an effective way for banks to redefine their relationship with customers. By having a truly digital business, banks can move away from reactive, transaction-based  customer relationships, towards a more intimate, proactive and personalised experience, across multiple channels, products and services.
Therefore, creating a trusting and emotional bond with every customer is the ultimate goal of a 'Digital First' strategy. For a bank focusing on digital banking may, therefore, adoption of a strategy as to how to be more attentive, hence anticipating customer needs and guiding them to the relevant products or offers quickly, how to be more insightful, hence leveraging analytics, data mining and other technologies to understand customer preferences, as well as needs, guiding them and increasing the value of each customer interaction, how to be more connected, hence providing a more seamless experience across channels and devices, so customers will feel positive about their digital experience, how to be more relevant, hence improving service to customers, by developing digital applications that recognise contextual signals, and engage customers within that context, and finally, how to become more available, hence deepening the relationship with customers, by giving them access to virtual relationship managers, and other digital tools and services all day, every day and across all channels and devices.
Finally, PwC research revealed that there is a very high correlation between digital engagement, and share of wallet for a customer, and that digitally active customers tend to have the largest product holdings. PwC also found that primacy in a banking relationship drives increased share of wallet, leading to higher generation from the customer pool.
Local banks, which run strategic CBS business transformation project, must now embrace a digital mindset, re-look at its technology architecture, ensuring presence of Service Oriented Architecture (SOA) framework for building robust delivery channels, fostering seamless digital on boarding.
The writer is a banker and currently, Chief Information Officer at Midland Bank, the UK.
muhammad_kafi@yahoo.co.uk