The roots of digital banking can be traced back to the advent of ATMs and cards launched around the 1970s in the West. Soon broadband and digital networks began to connect retailers with suppliers and consumers nurturing needs for early online catalogues and inventory software systems. By the 1990s, the internet's popularity began to grow. The improvement of broadband and e-commerce systems around the early 2000s led to what resembled modern digital banking. The proliferation of smartphones over the next decade opened the door for transactions on the go beyond ATM machines. Over 60 per cent of consumers now use their smartphones as the preferred method for digital banking. The decision for banks to add more digital solutions at all operational levels will have a major impact on their financial stability. While not all banks are in a position to make quick changes to their Information Technology (IT) infrastructure or the architecture on top of it, banks aiming to be disrupters can move towards broad end-to-end automation within a six-month time frame.
The potential benefits of new technologies for SME finance and financial inclusion can be evaluated by seeking answers to following questions:
-How can new technology, including artificial intelligence and big data analysis, change credit assessment of financial institutions and its implications for Small and Medium-sized Enterprises (SME) finance?
-How is new technology, including block chain, reshaping trade finance, money transfers, and other SME activities?
-How can alternative funding tools, including crowdfunding, be leveraged for inclusive growth? What are their implications for regulatory frameworks? What are their potential challenges for sound development of the markets?
Banks that deliver a comprehensive, feature-rich mobile banking app to their corporate clients are in reality providing them a competitive edge and flexibility to conduct banking activities with the same freedom as retail customers.
By offering an integrated business banking app, banks enhance the customer experience by giving company owners the freedom to decide how they want to do business. Providing this level of service also opens the possibility of acquiring new corporate customers.
There are four key factors that banks should offer to separate a business-focussed mobile banking app from a retail-oriented app used by consumers. These are:
- TRADITIONAL MOBILE FUNCTIONALITY: Running a business requires many more functions for banking than those offered to a consumer. Business owners still need to be provided with the basic functions that are typically seen in retail mobile banking apps. These include account reviews, money transfer, card controls, statement access, remote deposit capture, and transaction alert management. These tools can enable commercial customers to operate freely without worrying about typical banking hours.
- BUSINESS-SPECIFIC FUNCTIONALITY: Moving beyond the traditional retail mobile banking features, a strong business banking mobile app will have a few specific tools. These can include ACH origination, sub-user management, and cash management reporting.
These tools can allow business owners to quickly and easily monitor and manage the business' cash flow, as well as to get a complete overview of the company's financial standing.
- SECURITY: Banks must also address the security concerns of a business' regarding mobile banking. The more devices a company uses to manage finances, and the more personnel it has who can access the firm's banking services, the greater is the need for a strong security component in the mobile app. From the company's private information to its customers' personal data, business executives need to know that their mobile banking app has the security protections needed to thwart cybercrimes. Banks rolling out a business banking app should ensure protections such as out-of-band authentication, token authentication, and fraud anomaly detection. With these features, business executives are capable of verifying their identity to access private information, keep transactions protected with tokenisation and mitigate any potential threat of fraud to keep their business secure.
- INTEGRATION WITH ALL BANKING CHANNELS: Consumers expect a consistent experience whenever they interact with their bank. Business owner clients demand the same. Likewise, they are likely to be frustrated or confused if a bank delivers a different user experience - or unsynchronised account data - between a mobile app, an online banking portal, or the teller account screen. This poses the risk of them abandoning the mobile app - or, worse, moving their banking needs to a competitor. A business-focused mobile banking app should provide a consistent look and feel with all other channels so customers can seamlessly move from one contact point to another.
The future of the banking ecosystem will look much different than today and will extend well beyond just financial services. There is a unique opportunity to capitalise on the insights banks hold and the innovation that they can build, buy or collaborate with to become the centre of a consumer's everyday life. The big questions is: who will embrace this challenge? For the banking organisation, they will benefit from the new banking ecosystem by having increased customer interactions and engagement. The engagement becomes stronger because the bank's customers and credit union's members enjoy the benefits of a financial partner who can anticipate their needs, looks out for them and reward them for their loyalty by recommending ideal solutions.
Consumers enjoy an improved experience that saves them time and money, with a much more personalised relationship. They expand their relationship because no other organisation possesses the insights that their primary organisation does. Merchants and service providers also benefit from the bank's customer insights through improved offer targets and increased sales volumes.
To provide a structure for navigating this chaos, and to galvanise the shift to bolder thinking, six opportunities for banks to fuel future growth can be focussed upon.
A) GROW BEYOND YOUR CORE INTO RELEVANT ECOSYSTEMS: Banks have long relied on making customers aware of relevant products as a path to growth. For example, a customer with a checking account would be encouraged to consider a personal line of credit, a home-improvement loan, or a bank credit card. Banks can extend these services further and come up with new products that can cater to the account-holder's specific needs.
B) CREATE A FINANCIAL SUPERMARKET: Taking a page from some of the larger digital businesses, banks can offer curated and vetted mix of internal and third-party offerings. This aggregation model provides customers with easy, one-stop access to financial products and the ability to address multiple financial needs through a single, integrated channel. Building a financial supermarket allows a bank to focus on the high-return side of the industry: average annual return on equity (RoE) for providing credit from bank balance sheets is only six per cent, while RoE for product origination/sales is 22 per cent.
In the United Kingdom, for instance, 60 per cent of auto-insurance policies are sold through aggregators. And Bank Bazaar in India, a pure-play financial supermarket with no proprietary offerings of its own, offers a full set of services from more than 50 institutions to more than 23 million customers.
C) EXTEND VALUE ACROSS THE CUSTOMER JOURNEY: For most consumers, working with a bank is just a means to an end: ensuring a secure retirement, growing a business, or buying a home, for example. Most banks, however, tend to focus only on discrete, bank-centred moments in the customer's overall journey, such as offering a mortgage, when the customer's larger goal is to buy the house. By attending only to the bank-related part of the overall journey, banks leave considerable value on the table.
D) MONETISE YOUR DATA: More than half of financial-services respondents in a recent McKinsey survey said that their companies have begun to monetise data. What's more, data monetisation seems to correlate with industry-leading performance.
There are multiple ways to monetise data. The first is for a bank to use its internal data more effectively for its own operations by adding new analytics capabilities. Another is to create new offerings, such as reports or benchmark analytics, based on bank data. Several of Canada's biggest banks have partnered with Toronto-based SecureKey in a system that allows individuals to use their bank credentials to access online services from the federal government. The system works in much the same way as websites that allow users to log in using their Facebook account - except in this case, Canadian government agencies provide access to online services when visitors enter their bank credentials. The banks just use the data they already have to verify their customers' identities, and then provide it as a secure capability at a truly national scale and gain access to new potential customers.
E) BECOME A DIGITAL ATTACKER: By employing digital channels or novel business models, incumbent banks can enter new geographies or market segments that would be prohibitively expensive targets using traditional approaches. ING Direct was the original digital attacker. It started as an exclusively online bank in 1996 and attracted more than 20 million customers in nine countries over little more than a decade. Later, several of its national subsidiaries spun-off in the late 2010s.
Banks should consider this option if they want to enter new markets or segments without the need to invest in the physical infrastructure which would be prohibitively expensive. This approach is useful for exploring market opportunities, but it requires sufficient digital skills (design, customer experience, analytics, etc.), the expertise to scale wins, and the management discipline to kill off poor performers.
F) BECOME A PRODUCT-OR INFRASTRUCTURE- SOURCING FACTORY: Many banks and fintechs are locked in a battle over the customer- facing front end. But large institutions can create significant value by leveraging back-end assets to create and provide products or services to smaller banks and other businesses. This is because many small and non-traditional institutions lack core banking products, infrastructure, capital assets, or even banking licenses, and do not have the reach or resources to acquire them.
Prior to taking the digital journey, a bank should reconsider its future business model and subsequently its internal culture and resources to be aligned with that digital vision. Until its systems, human resources and processes are redesigned towards meeting future customer needs, it will not be able to offer a meaningful end-to-end customer experience. Therefore, the banks must formulate their respective long-term digital strategies and collaborate internally as well as externally for seamless implementation.
Masihul Huq Chowdhury is Managing Director & CEO of Community Bank.
