Senior leaders from various financial institutions (FIs) assembled in Charlotte, North Carolina for Datos Insights’ 2023 Retail Banking & Payments Executive Council meeting to discuss all aspects of digital transformation at their organizations, including ongoing initiatives and factors determining success or failure. While some are further along the digital journey than others, FIs share key considerations regardless of their current stage of digital transformation. My latest report, co-authored with David Albertazzi, provides a summary of fundamental concerns for digitally transforming institutions.
Customer Experience (CX) Is the Most Crucial Point of Differentiation
FIs often have the same products and services and differentiate on delivery. From the 90s to 2010s, rates and fees were the major differentiator. This has somewhat reemerged in 2023 with the race for deposits and quantitative tightening across the industry, but eventually, the dust will settle with CX at the center of the digital bank.
CX is so crucial because clients’ loyalty is in flux. Individual segments and even consumers will have nuanced expectations of specific features, such as SSO, face enablement, and customer recognition across distinct products. Many banks have established positive ATM and branch experiences, yet the newer online or mobile portals are the primary modes of interaction for many customers today. Regarding the omnichannel experience, the transition between channels must be flawless.
Customers today prefer speed and a smooth customer experience and are willing to pay more for these qualities. Yet the struggle to achieve compliance precludes banks’ ability to deliver on all these possibilities with speed. More often, CX execution is determined by the current platform’s gaps and the priorities of current clients. It’s difficult for banks to “be all things to all segments” or serve every client segment in a really great way. Executive Council members advised that “banks should ruthlessly prioritize, rather than being average at 10 things.”
Banks Must Progress Beyond Table Stakes With Enhanced Data Utilization
Council members agreed that utilizing core banking data is table stakes for digital transformation. Yet achieving the level of personalization customers are looking for requires other data feeds and sources beyond the core banking system. Behavioral data amassed from monitoring customers’ engagement with different channels better facilitates personalization. That said, combining different data sources can create challenges with data privacy compliance, especially for banks that operate across multiple states or territories each with different regulations.
Making the jump from data utilization to digital transformation involves a human element in addition to data-driven insights. “It’s not just having the data – it’s what you do with the data,” one council member advised. An integrative model wherein bankers act upon insights with speed and precision to drive and enhance customer engagement can be a powerful driver of success.
New Technologies and Fintech Partnerships Help Foster an Innovative Culture
Digitally transforming institutions should foster a culture of innovation and agility to adapt to changing customer expectations and market trends. This can include embracing new technologies, collaborating with fintech startups, and experimenting with innovative solutions to provide novel financial products and services.
Collaborating with fintechs can aid in banks’ efforts to achieve an innovative and agile culture. An Executive Council member explained: “BaaS and fintechs are all about digital first. They start there, rather than try to go there.”
Moreover, partnerships with fintechs also present opportunities for smaller FIs and community banks to spread their deposit network and total addressable market over a broader footprint and accelerate digital transformation. Any bank looking to expand its market or diversify its business model should consider fintech partnerships as a potential next step.
Digitization Will Endure as a Strategic Priority in the 2020s
The council meeting confirmed that achieving the “digital bank” is a key strategic priority for their institutions and establishing a digital customer experience is crucial to retail banks’ ability to compete in the 2020s and beyond. The process of digital transformation, catalyzed in recent years by the COVID-19 pandemic, is nonetheless ongoing. While many banks already have digital initiatives underway, few would consider their transformation complete. As they proceed, banks will be tasked with rethinking the relationships among information, people, and processes given new and evolving capabilities. In return, they will reap the rewards of customer satisfaction and business growth.
The full report, Steppingstones to Digital Transformation: Banks Assess Their Progress, is available to clients of Datos Insights’ Retail Banking & Payments practice. If you aren’t already a client, contact me at [email protected] to discuss how you can get access. For more information on the Retail Banking & Payments Executive Council, visit our website.