Digital Interactive Services
Banking in 2021 and Beyond
Banks and finance is probably one of the most digitally advanced industries globally. And with Covid-19, the digital adoption has only been accelerating. In a recent podcast, Sourav Ghosh, Industry Principal – Digital Financial Services, discussed about the evolution of banking in 2021 and beyond.
Q: How will banking be in the New Normal?
The world is going through exciting times in Banking, with many innovations happening in the banking ecosystem all around. Consumers are expecting more from their banks – they want to be able to access their bank accounts or services from anywhere and at any time. The explosion in new digital banking experiences delivers a whole new level of convenience to consumers, who are now banking primarily through mobile, web, chat, and other digital channels. Branch-based banking is increasingly becoming obsolete.
Covid-19 has changed communities, industries, and the world in a way we could have never imagined otherwise. Globally, for the last 9 months, banks have been focusing on five key areas, and most of the transformation in the near future will be centered around these:
- Balancing employee safety with productivity
- Recalibrating operating models to support affected consumers
- Minimizing any operational disruption to keep services running while meeting regulatory & compliance obligations
- Changing operational resilience through remote working models & broader environmental factors
- Mitigating & managing risk.
There will be higher demand on digital capabilities - from remote working to remote servicing to even remote selling for consumer engagement. A research found that 75% of financial institutions consider themselves not adept at using data and analytics for consumer personalization. x
To get there, banks must adapt to the new landscape and embrace new business models like “Banking as a Service” driven by digital transformation that can provide agility and security to consumers, while complying with regulatory requirements. This presents a big opportunity for digital transformation in banking.
Q: How is “banking as a service” fundamentally different from traditional banking services and what would banks need to do to be successful in that play?
To understand how it’s different, we need to step back a bit and understand how it originated. Since about the end of last decade or so, financial technology companies or fin-techs have been disrupting the traditional banking services industry with a wide assortment of innovative, plug-and-play, multi-channel and easy-to-use banking solutions. New offerings, like digital wallets, wealth management, peer-to-peer (P2P) lending and payment offerings, are increasingly becoming attractive to banks and other financial institutions consumers.
With Banking as a Service, banks are morphing from being “a builder and manager of financial solutions” to being also “assemblers/aggregators of consumer-driven financial management tools and related offerings”. Developing BaaS solutions allows legacy banks to establish profitable relationships with emerging fin-techs. This provides a greater competitive edge to banks. BaaS helps banks accelerate their growth in new markets and rapidly meet the expectations of digital-savvy consumers but moving to BaaS may not be easy and quick.
Q: Is “open banking” the same as BaaS?
Open banking fundamentally refers to any initiative by a bank to open its APIs to third parties and give those third parties access to the bank, whether it is access to data or access to functionality. It revolves around the premise that consumers own their banking and transaction data and as such can choose to share it with whomsoever they wish, to get better products and services.
Banking-as-a-Service is a bank API strategy falling under the open banking umbrella, which requires access to a functionality. It is an end-to-end process that allows building on top of banking provider’s regulated infrastructure and providing on-demand services.
For instance, say you have booked tickets to a football match, bought a flight ticket and now looking for a hotel. Now, if you have given consent to your bank/airline company to share your data, you will receive several relevant offers and promotions on your inbox.
Q: What are some recommendations for digital transformation of banks in 2021 and beyond?
Digital transformation is about more than just providing online and mobile functionality. Eventually the starting point for each financial institution will depend on its business strategy, market position and capabilities, but mainly it’s about ensuring four fundamental things:
- Reimagine the consumer journey: Today’s banking consumer’s benchmark is one-click ordering — see it, like it, click it, buy it. That’s the purchase journey they expect from everyone they do business with.
- Leverage the power of data: Leverage advanced analytics to better anticipate loan defaults or to find consumers who, due to overzealous discounting, are underpaying. And this leads to banks then updating the price of these products and services.
- Redefine the operating model: Consumers increasingly want the best of both worlds: a digital experience when they need speed and convenience and a human experience when they need advice for more complex products such as investments or mortgages or when they have an issue or problem.
- Build a digital driven organization: While infusing a digital mindset into a traditional banking culture could prove to be challenging, success will depend on executive commitment to make this happen. Also teaming up the with fin-tech ecosystem will be critical. That’s where you would get some of the most innovative ideas.