Banks have problems with Digitalization

One sometimes gets the impression that banks are like ancient rocks immune to the ravages of time. But digitization is going to bring major changes for them too. Should they be scared of the new wave of digital change or can they rest on their laurels? 

Apple Pay: symbiosis or a race?

Last October, Apple launched the new Apple Pay system for iPhones. Working with many big banks, this tech giant snatched away customers from right under the noses of financial institutions – so far only outside of Germany.

One could compare the relationship between Apple and the banks with that of Apple and the automotive industry. In reality, this apparent symbiosis is an ill-matched race on the advancement of digitation. While automotive manufacturers keep mulling over how to connect the Internet of Things with a smart car, Apple and others are developing apps and gadgets to do precisely that, stepwise. Instead of analyzing and admiring the product, they are focusing on the customer.

Banks: the two-pronged transformation

Let’s talk about banks again. Things look pretty depressing, and one can’t deny that digitization is the underlying cause. The Deutsche Bank is shutting-down branches, the Postbank is up for sale, and Roland Berger, the management consulting expert, has come up with a new survey that reprimands them severely: “banks are plodding along, while customer expectations keep rising.”

Still, banks should not throw in the towel yet. Instead they should dig deep to find out why customers are disappearing. Roland Berger seems to have an answer: most banks are unprepared to personalize their interactions with customers, or link online and offline services and channels, or deliver relevant information quickly.

Outcome: the customer experience can’t keep up with customer expectations.

Customers are becoming more demanding and especially more flexible through the disruptive FinTech business models like PayPal and Apple Pay. In the past, customers could only complain and they had to go through tedious processes to look for other banks. Now they are better informed of alternatives and can withdraw faster from contracts. These days, it’s not just the local bank that offers one or more services that practically benefit the customer. Instead, apps with much fewer hurdles enable one to select, book, and use digital business models.

What happened to the customer journey?

The Roland Berger survey came up with an apparent contradiction: especially in the first stage of digitization, German banks are ahead of others – with the result that they could best offer customers what they seek.

However, German banks are laggards from the standpoint of using digital media to get better acquainted with customers, to analyze their information, and to link their interactions and customer journeys with the business. (It turns out, no German bank was able to serve customers digitally and offline, without losing information).

No wonder that while FinTech companies have started from scratch to get involved with customers and digitization, regular banks need to restructure complex systems and rethink their business models.

As revealed by Thomas Kreuzer, one of our finance experts, revamping the CRM system is thus a big issue, particularly in the B2B sector (with B2C not too far behind), an issue that seamlessly transforms into a growing interest in business intelligence. Hence, banks have realized that a technology base is inadequate without a strategy.

And these strategies must try to keep pace with the competition. The press release “Digital Multi-Channel Management” from DekaBank, an ec4u customer, states, “Accompany the customer throughout her/his journey with the right information, i.e., from the impulse to gather information through to conclusion of the transaction.”

Priority of information privacy & compliance is rising

Besides, Thomas Kreuzer knows that “Compliance is not just a hot issue, it is the fastest growing area.” As such, he is tapping the pulse of customers: in the course of digital transformation in such a sensitive area, the customer data and systems must be secured. No shortcuts whatsoever, though, because at the end of the day transparency and trust will be the biggest arguments against big (international) competitors, particularly to strengthen those in the German market.

Conclusion: digital transformation is more than just technology

It is easier to build a new design than to rebuild an old design. That’s exactly what’s happening within the area of digital transformation with many banks and financial institutions. As companies continue to set up their technical platforms, they lose sight of the true goal and the real innovation behind digitization – the customer.

In reality, banks could compensate with new customer concepts (customer journey) and a new understanding of customers (customer analytics), and thereby leave their competitors biting the dust. For this to work, though, their services must be adapted to current customer wishes:

– Personalized service

– Fast and relevant handling of queries

– The right information at the right time

– Mobility and flexibility for contract models

– Transparency and information privacy

Traditional banks have a major advantage on the last point, because they naturally safeguard customer information. Digital companies, on the other hand, tend to address compliance and information privacy more as a footnote. If banks get to the stage where they can offer customers advanced services and experiences without jeopardizing their personal information, the disruption caused by digital companies could soon turn into a positive motivator.

Need help on the way to the full on customer journey amidst the digital transformation? We have the technical expertise, can guide you through your company’s change management and know all about your customer’s needs.