Banks go Digital

Monday 21st, December 2015

The world has gone digital. And to try and keep up with it, every traditional Bank tries to come up with strategies to keep its head above water. Some think of increasing fees they charge on products. Or charge more interests on loans. Do they let go of a lot of people? Or shut down brick and mortar branches and move their activities online? Should they outsource their business to another country where it is cheaper to run it?

The Banking industry is seeing a whole gamut of new trends spanning delivery and payments, competition and operations, customer experience and marketing.

A certain European bank, as part of its Basel II compliance effort built a technology platform to track, measure and manage its credit risk exposure and develop better insight into managing credit risk limits for its customers. Through this, the bank would achieve a reduction in the amount of risk capital on its balance sheet (thereby decreasing its cost of capital) and would be able to price its customers far more effectively. Automating some processes in the back office of a bank will also certainly help to some extent. For instance, it might be a great idea to use image and workflow technology to automate manual, paper-based processes and minimize process duplication.

Process automation is a great benefit that technology can bring to the table. Technology has the capability to totally replace some manual processes. There are ways to reduce paperwork and automate processes. By implementing cloud computing, for example, you could store information cheaper, do your accounts in a cost effective way, and even run a content management system online. You could use the internet to communicate with your staff, suppliers and customers. And flexi-time for employees with options to work out of home, works great. So it might be a good idea to analyse your processes from end to end and see how some digitization can have a dramatic impact.

In India, ICICI bank does at least 30% of its transactions through the internet, reducing the costs of such operations to a tenth! Only 10% of their transactions are done in their branches and a whopping 50% of it happens through their ATMs. HDFC Bank does 40% of its transactions through the Internet. They say that they save as much as 95% of the cost when a customer transacts through Internet banking. They offer as many as 135 different transactions through the Internet – ICICI even has a Facebook App that lets customers transfer funds online! Citibank, which is US-based, has a large online presence and just 43 branches in India. “It costs around 30 times more to do a similar transaction in the branch when compared with online,” a Citibank spokesman said via email to a local newspaper.

ATMs are a great way to save money and cut costs. The cost of ATM transactions is far lower than transactions through bank tellers. Moving traditional bank operations to ATMs can lower costs significantly. There are several advantages for customers – they are open all the time and are very convenient. Some ATMs even have text-to-speech assistance and customer personalization. There are ATMs in Japan with 19-inch screens, biometric identification and the ability to print new debit and credit cards! Bank of America has Teller Assist machines which offer services such as check cashing, exact change (down to the cent), split deposits and loan and/or credit card payments. If the customer opts to speak to a live teller (located in Delaware or Florida), he has access to more services, with such machines offering as much as 80 percent of the typical branch features. Cost-wise, it costs a bank about $1.25 to conduct an ATM transaction as opposed to $4.25 at the branch. While advanced ATMs might cost more, it is still cheaper than banking with a person.

Bank of America has come up with a novel idea – it has converted some of its branches in Washington, D.C. and Los Angeles into specialized branches where clients can get advice on mortgages through video conferencing. Citibank has ‘Smart Banking’ branches where there are spaces equipped with innovative technology like media walls, interactive kiosks and work benches which would let clients navigate on their own and get information on a wide range of products and solutions, and also transact!

Digital technology need not always replace human presence. Digital can be complementary. Simply by introducing elements of their online channels into their physical stores retailers are giving customers the best of both worlds leading to high online-offline coordination. The American Bank BBVA Compass has something called a “Virtual Banker” – this is a collaboration tool that allows video conferencing between customers in a branch and advisors who are remote. This tool offers document sharing, scanning and printing – so signed documents can be sent and retrieved!

Hapoalim, one of Israel’s largest banks, has a very novel service called the Poalim Connect. Here there is a virtual branch service which allows customers to connect with a real personal banker through an online banking session. It has a simple but intuitive web page which has resulted in tremendous customer satisfaction.

The future is certainly digital – you could have self-service branches which offer products and services that are already available via online channels – like account opening and loan applications. This will take minimal staffing with limited advisory services coupled with digital tools – this offers reduced operating costs compared to full-service branches. Or you could have kiosks that let the customer help himself. Or you could go entirely digital and offer videoconferencing, online document sharing, digital signatures and card readers!

Before doing any of this, banks need to do a detailed customer demographics analysis to understand their target customer profile, their banking behaviour and profitability and then plunge into taking the whole banking process digital. Because that is certainly the way ahead. Greater ease. Lower costs.

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