Retail banking would need to undergo a dramatic transformation in the coming years to retain its relevance.
In its current form, it plays a very passive role in the lives of a vast majority of its customers.
Drawing from my own personal experience, most customers do not ever go to a branch and rarely ever call the phone banking hotlines.
The reasons are two-fold – mobile banking fulfills most of their requirements and they hate the long waits on the phone or at the branch.
A bank currently is an extremely inefficient CFO who merely views all transactions but never takes the initiative to give any useful advice which can improve a customer’s financial position.
Compare this to the genies of the modern world – Alexa and Siri – who can recognise by voice, are always available when you want them, provide instant solutions and are almost able to read the users’ minds. Inevitably, as a customer’s bond grows stronger with the likes of Alexa and Siri, they will forget their bank and banker.
Can banks become more personal?
The first big change that I see coming is that banks will need to up their ante and provide far more personalised and useful information which makes a difference to customers’ personal well-being, rather than sending mass mailers on discounts at malls and restaurants.
The question customers will ask their bank is, if Uber can send me statistics on how many rides I took in a year, average distance travelled, average amount spent per ride, most travelled route and Spotify can tell me my top songs of the year, the genre of music I listened to, create playlists of the songs that I heard the most and also songs which I might have liked but I missed, then why can’t my bank tell me anything useful after monitoring all my financial transactions.
My property is mortgaged to the bank and I would appreciate it if the bank sent me a report at the end of the year which told me the average price for transactions for similar units in my locality. Information on the rental rates for similar units would also be very useful. These could influence my future decisions to buy, sell, rent or pay down my mortgage.
All my utility bills are paid via standing instructions through the bank account and it would be useful to know how my household spending compares with other families with similar demographics and any suggestions on how to optimise my expenses would be extremely valuable.
Having the privilege to view how I spend every single penny that I earn, via credit/debit cards or any other payment mode, is a minefield of data which a bank can analyse to provide personalised advice which improves my well-being.
Categorising clients based on the quantum of wealth gives none of the insights which analysing the spending pattern can provide. Therefore, Big Data and Artificial Intelligence (Machine learning and Deep learning) are going to play a critical role in transforming banks from being mere pass through vehicles for transactions to becoming intelligent financial partners.
Banks were traditionally created for handling financial transactions and hence profiled customers only on the basis of income earned, risk-taking ability and expected return.
However, as banks evolve beyond this model to becoming a multi-service platform, using data to analyse other parameters such as spending habits, lifestyle and so on would be critical to providing personalised advice.
Since all this personalised advice needs to be delivered without a long hold on the phone or queuing up in the branch, artificial intelligence will play a critical role in improving the customer experience.
Banks have made a significant progress with chat bots but, eventually, they are likely to make way to more advanced technologies.
In my vision of the future, a banker would be available at the press of a button on the phone or watch in a holographic form and be able to provide instant personalised advice.
To remain relevant, banks would need to provide faster, cheaper and easier solutions via partnerships with other Fintech firms and share client information with other service providers.
Internet of Things (IOT) is likely to create further disintermediation between the client and bank as smart devices start dealing directly with banks. Hence, any slack in the quality or speed of advice will make banks totally irrelevant with the customer.
Private banking must change as well
While the dynamics of the private banking business are very different, this segment is ripe for change too.
Over the years, very little improvement has happened other than the fact that most banks have now managed to build an app which provides the digital equivalent of information, which was erstwhile available only in physical format.
A few bells and whistles such as the ability to trade and contextualised research have also been added to the digital offering.
In the last 10 years, the investment scene has become more complicated. A deluge of information has led to greater correlation across asset classes as almost everything seems to be interconnected. Market trends have become short-lived and opportunities disappear even before you get ready to pull the trigger on an idea.
A client therefore no longer enjoys investment decision making but does it like a chore to manage his savings. Without the ability to delight its customer, the private banking business is losing its pricing power and margins are getting squeezed.
Private banks have a great depth of information on the clients’ finances but know very little about the other aspects of their life.
The data available on health, lifestyle, areas of interest etc is very static and nowhere close to what a Fitbit, Uber or Facebook knows. Therefore, unless private banks start thinking of new partnerships and new sources of revenue other than selling investments, a new Fintech entrant or an established tech giant will start biting into their business.
This is already happening across different parts of the retail banking chain because of the commoditised nature of that business.
Private banks have to overcome their client data deficiencies by providing open API to developers who can build applications which can interact with the current digital banking applications.
These applications would then help private banks value add from this data and monetise it.
The pitch for an investment needs to change from the traditional merits such as risk and return to linking these merits to a behaviour or lifestyle.
For example, a millennial whose recent obsession is the health benefit of Matcha, is more likely to buy a Japanese consumer stock idea than someone who is into sports cars.
I firmly believe that the digital transformation means that there is no longer such as thing as “business as usual” for banks.
The banks which can keep up with their clients are the ones which will survive into the new era.Disclaimer applicable to recommendation
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