Absence of digital maturity threatens survival of banks

A digital strategy that enables the organisation to stay ahead of the competition is just around the corner. But only if it can see what's coming before the rivals do. Ability to synthesise key technology and industry trends into digestible and actionable insights arms the organisation with the ways and means to lead in digital.

Staying ahead of rapid technological advancements is integral to business success in today's digital era. But keeping up and following the right course has its challenges when daily operations impinge upon any efforts to think ahead. Cognisant leaders understand digital strategy and big thinking, which they can use to get ahead.

Like weary travelers, business and technology decision-makers need roadmaps to build a competitive advantage. Cognisant thought leadership helps stay on course, steer around corners and achieve a competitive edge. 

Over the past year, an accelerated consumer adoption of digital banking has been witnessed as consumers globally had to pivot from in-person banking to digital alternatives. Some financial institutions were prepared for this shift, while others had to quickly adjust to the 'new reality' of supporting consumers who wanted to manage their finances, pay bills, send money to family and friends, or simply deposit a check or open a new account.

The pandemic impacted all consumer segments. For instance, the digitally active consumer segments expanded beyond the young, to include those over 50. In fact, the largest growth in digital banking usage was with senior consumers, who have been the foundation of many smaller organisations. One of the most impacted areas of digital banking growth occurred with mobile deposits, with consumers in every demographic category depositing their stimulus checks using this functionality.

Finally, the importance of being able to quickly and easily open a new account or get a loan using online or mobile banking has become a significant differentiator between digitally mature organisations and those lagging behind the leaders.

While the future trends and priorities mentioned by all financial institutions were very similar, regardless of the size of organisation, there was a significant disparity in the progress made to become a more mature digital provider of financial services based on asset size. Many organisations with low capital will be challenged to match the digital banking capabilities of their larger peers.

Trends and Priorities

Obviously, projections of 2020 retail banking trends and priorities did not take into account the impact of the global pandemic. In a matter of weeks, the way financial institutions delivered banking services changed because of the unprecedented shift to digital channels worldwide. This required organisations in all industries to alter their view of the future.

The need to remove friction from the customer journey is being viewed as a more important trend in 2021, as was the need to support digital payments as consumers stopped using cash. There is also a realisation that integrated delivery of services across channels is an imperative that can't be ignored.

On the other hand, financial institution executives believe there will be a drop in importance of several trends, including the use of data and advanced analytics, the importance of open banking, and the pursuit of fintech partnerships in 2021. There is also a significant drop in the belief that innovation will be a major trend this coming year. There was very little difference between big and small institutions in their perspective on trends for 2021.

Other strategic priorities for 2021 would be in the weighing chronologically (may vary from organisation to organisation): use of big data, Al, advanced analytics and cognitive computing, use of APIs and open banking, building partnerships between banking and fintech firms, investment in innovation initiatives, emergence of new banking competition, responding to regulatory changes, finding and/or training new talent, exploring advanced technologies (1oT, Voice), testing and use of cloud computing. 

The top strategic priorities for 2021 were surprisingly consistent for big and small institutions as well, with the top three priorities being the need to improve the digital customer experience, a requirement to enhance data and analytic capabilities, and the desire to reduce operating costs. The difference between large and small organisations was most evident in the need to leverage data and analytics. Most likely because of a lack of focus on this priority in the past. Smaller firms also indicated a much higher need for talent.

Top three strategic priorities for 2021 of a bank

The top three strategic priorities for 2021 of a bank are:

• Improve digital experience for consumers 

• Enhance data and analytics capabilities 

• Reduce operating costs

Other priorities not less important to have emerged are, digitise back-office operations, improve innovation culture, update legacy operating systems, meet regulatory and compliance specifications, improve components of security, invest in and/or partner with alternative fintech providers, recruit or retrain talent to meet changing needs.

Banks of all sizes need to understand the correlation between data and analytics and the ability to deliver a better customer experience or even reduce operating costs. Many banks are also realising that simply providing digital functionality is not enough … back-office processes, as well as an upgrade in digital talent, is also needed to meet the expectations of the digital consumer.

People standing in queues in a bank. Photo: Rehman Asad

The similarity in perspectives of retail banking trends and priorities between banks larger and smaller in assets masks the significant gaps in digital banking maturity that exist based on asset size. Some of these gaps reflect leadership and cultural differences, while others reflect a difference in investment in the primary components of digital banking transformation. In either case, as the digital expectations of the marketplace continue to increase, these gaps in maturity could soon impact the viability of hundreds of smaller institutions globally even in the context of Bangladesh.

When financial institutions were asked about their current stage of digital banking transformation, most of the banks with having a weak base in assets stated that they were in the early stages of transformation, compared to the banks with having a strong base in assets. While there was very little difference in the percentage of digital banking 'masters' based on asset size, larger banks reckoned and believed they were beyond the midpoint in digital banking transformation, compared to smaller ones.

When the Digital Banking Report did a deeper dive into how mature banks and credit unions were in specific digital banking transformation strategies, the differences were startling in almost every category, from digital account opening to digital onboarding to customer and member engagement. The smallest difference between small and large organisations were in the categories where virtually no organisation is performing well, such as predictive alerts, small business lending and personalisation of communication.

Current status of digital transformation strategies

In the banking industry in Bangladesh, top IT-infrastructure based banks will acknowledge that the current status of digital transformation strategies are: end-to-end digital new account opening, digital new customer onboarding, mobile small business banking app, virtual or video agent chat capability, end-to-end digital consumer personal loans, customer care chatbot, end-to-end digital mortgage loan (in progress), predictive advisory alerts based on account activity, small business lending. 

With the digital banking maturity gap being so significant, smaller financial institutions must convince solution providers to enable them to catch up in key areas of digital banking that consumers desire the most.

Now the question may arise whether Fintech collaborations can bridge the digital banking maturity gap. While third-party solution providers can assist smaller financial institutions to meet the digital banking needs of an increasingly demanding consumer, the opportunity to collaborate with fintech firms cannot be ignored. 

From the ability to open new accounts or loans quickly, to building savings and investment solutions that replicate the best in the business, fintech firms are not hampered by legacy banking cultures and processes. They also can bring new innovative thinking to banks that need to look to future needs not yet identified.

Unfortunately, smaller banks severely lag behind larger financial institutions in their pursuit of fintech collaborations. Very few banks have already partnered with fintech firms. Of greater concern is that smaller banks indicated that they have no plans to partner with fintech firms in the foreseeable future compared to a few larger IT infrastructure-based banks. This places smaller banking organisations at a tremendous disadvantage at a time when these types of collaborations may be the easiest to form.

The time for action is now. Before the pandemic, larger banking organisations have already moved to provide enhanced digital banking solutions for the masses. From easy new account opening functionality to voice banking solutions, investments were made to shift from the physical to the digital. At the same time, many smaller banks were comparatively complacent, content with providing excellent in-person experiences, while being slow to respond to an increasing segment of consumers who wanted to do their banking digitally.

Smaller financial institutions must leverage the spirit of cooperation and focus on the end goal that was evident immediately after the pandemic hit. While the challenges seem daunting, there is no other option.

When covid hit and eliminated all in-person banking, smaller banks were caught off guard but responded quickly by offering digital services and creating new opportunities. This speed in response cannot stop despite the improvements made. Now, more than ever, smaller financial institutions must find ways to match the digital maturity of larger firms.

The good news is that third-party solution providers and fintech firms can bring in the innovation and developmental spirit assuming current leadership is willing to embrace change, take risks and disrupt the existing state of the affairs. The process is far more than simply 'flipping a switch'. It requires all organisations to move in the same direction to 'become digital'.

Md Kafi Khan is the company secretary of the City Bank Ltd.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.