By implementing innovations such as cashless payments, open data, digital identity, digital signatures and AI, banks will be able to monitor compliance and improve efficiency in the broader economy. For example, open data will make it easier for people, companies and governments to seamlessly transact and accelerate decision-making.
"There is one step banks can – and must – address now, or risk lagging behind other markets.”
The adoption of such innovations will enable the banking industry to create growth and support the development of a more productive economy.
Recent research by Boston Consulting Group (BCG) titled: “Australian banking and the recovery – 5 strategic priorities for banks” explores how banks can recover from the COVID-19 crisis and succeed beyond it.
While each of the five priorities is essential in its own way, there is one step banks can – and must – address now or risk lagging behind other markets: they must accelerate the acquisition of digitisation and servicing.
The new normal
The COVID-19 pandemic significantly impacted many industries. The Australian banking industry, for one, is expected to see a revenue drop of between $A8 and $A10 billion from 2019 to 2021, from a baseline of $A87 billion in 2019. And with changes in customer behaviour, banks cannot afford to wait to digitise their offerings.
The need to go digital is not new; customers were already changing how they interacted with banks before the onset of COVID-19 but the pandemic has quickened that transition. There has been a rise in cashless transactions, with many businesses refusing to accept physical cash altogether. Bank branches have been forced to restrict operations with limits on customer headcount and interaction with bank staff.
As a result of these challenges, more than 17 per cent of Australian customers have increased their use of mobile banking apps while online banking enrolment has increased by 3 percentage points to 81 per cent. These changes are likely to stay with more than 18 per cent of customers planning to use branches less or stop visiting branches entirely post-COVID.
Although digitisation is all about improving the customer experience when it comes to sales and services, it is also a way for banks to boost efficiency. There are also benefits for the broader community as the Australian banking sector plays a key role in strengthening a weakened economy.
Up for grabs
Australian banks are making progress but there is a real opportunity for them to double down on their digital capabilities. They have already invested significantly in going digital but they lag banks in other markets – especially Europe.
Banks in Poland and Spain are among the top performers. Millenium in Poland, for example, grew revenues by 10-50 per cent in priority segments and topped the market’s net promoter score in the space of just 12 months by focusing on digital sales and product personalisation. mBank demonstrates productivity up to three times higher than its peers through the digitisation of its entire value chain front-to-back, digital sales, and data and analytics (D&A).
There are two primary ways banks can undertake digitisation.
- The first option is to digitise the core front-to-back, using omni-channel and D&A to enable the transformation. To do so, banks could:
- Accelerate new customer growth by developing personalisation and digital sales capabilities to provide the right offer and service at the right time via the right channel.
- Boost customer satisfaction by expanding digital front-end capabilities to include video appointments, enhanced online banking and mobile app functionalities.
- Answer more than 80 per cent of customer requests online by completely digitising processes front-to-back with straight-through-processing, same-day decisioning and self-servicing capabilities. This can eliminate process waste, significantly reduce the cycle time for customers and reduce overall costs by 30 per cent or more.
- Modernise the tech stack – the cloud and services architecture – and capitalise on network effects from disruptive technology, such as the New Payments Platform (NPP).
- Commercialise D&A business cases on the front-end using Martech with the aim to initiate more than 50 per cent of complex sales – such as home loans – through enhanced D&A capabilities such as prompts, click-to-call or cross-channel appointments.
- Adapt the physical network to changing customer preferences by treating the branch as a destination for advice and sales rather than simple transactions. Given customer plans to visit branches less, banks should provide digital channels to pre-book branch appointments and use branches to maintain some physical presence, depending on the needs of communities. They should also upskill current employees to newer modes of interaction such as telebanking.
The second option is to invest in a neobank or a digital attacker and progressively simplify their existing products and processes to migrate the core to the challenger. Banks could:
- Asses opportunities to build or invest by screening potential ‘digital attacker’ neobanks and fintechs and identifying attractive strategic assets such as a digital brand targeting new customer segments (e.g. millennials and digitally savvy customers), modern real time core banking platforms, API architecture with a single customer view and efficient customer engagement through digital channels.
- Map out a migration pathway from the core to the challenger, starting with the simplest products and segments to test and learn. The simplification of products, policies and processes will be required to successfully make the transition over time. While some players are considering migrating to a challenger, this approach is still being tested by banks around the world.
Banks have a real opportunity to modernise their technology and processes, overhaul their physical networks and increase their customer personalisation capabilities through digitisation. Doing so will improve the customer experience, boost efficiency and steer Australia to a vibrant, digital economy.
Laure Jouan is a Principal in the Financial Institutions Practice for Boston Consulting Group
She is a core member of the Financial Institutions and Insurance Practice in Australia and New Zealand