How will banks survive with third-party customer interactions?
Customized retail products designed for specific customer needs are what big techs are up to for a seamless user experience. These financial service concepts circle around users so that they may not need to migrate to other platforms or brick-and-mortar services to avail of such needs. Fintech firms act as third parties for moves that Amazon, Google, Uber, Apple, Facebook, Alibaba, and Grab are envisioning. Retail banks for the most part are playing reactive by digitizing their processes instead of creating new instruments for a techie future.
Indeed, the financial landscape has become highly competitive for the banking industry given that other banks, aside from digitizing, are merging, regulations across regions are evolving, and customer expectations are rising. A first-hand experience brought about by the pandemic demanded that human lifestyles in the new normal continue to be lived via push-button, multi-channel digital approaches.
Can banks survive the battle to keep customer base loyalty right at their parking lots?
There is no way banks can compete side by side with big techs until they know what makes them successful. Since they are all internet-based, big techs make use of platforms. A platform is a digital business model that produces value by bringing various consumers and producers together and mediating the exchange of values between the participants in a collaboratory ecosystem. The network effect produced by the platform through its existing customers attracts other consumers and developers to use the platform.
The banks have yet to transform their traditional infrastructure to be able to change the way they conduct services like lending, depositing, and withdrawing in direct contact with their clients. As that relationship may be the banks’ strong point, they may lose that loyalty if they fail to innovate and transform into a digital business model.
To stay competitive, banks can generate value for their clients via a platform of various financial products created by them and other scalable products produced by choice partners. The platform is strategized to create activities among clients, partners, and services wherein the value produced benefits the participants. Fintechs and other digital and IT experts can bring in huge value as they can upgrade the banks to be more modern, agile, and tech-savvy. Aside from enriching client experience, platformed banks make themselves open to other opportunities like cross-selling and external revenue-generating pipelines.
Big techs have ecosystems and platforms that keep the big data to know their customers and earning their trust. It is high time banks need to redefine who they are and change their mode of operations. For most banks, they need to take a complete about-face from being a vertically integrated value chain controlled monolith to an innovative, more open, modular, and scalable platform. That means products and services can be customized and simplified according to client needs, or curating other products offered by industry partners. With the help of APIs (application programming interface), banks can operate like big tech firms being expert customer intermediaries of choice financial instruments.
Banks and financial institutions have begun traversing the digital highway albeit in a slow-paced way. Statistics reveal that only 23% have truly built working digital platforms while 77% are either in the early stages of digital integration into their core legacy infrastructure, planning and exploring digitalization, or do not plan to integrate at all. It is because evolving from a monolith architecture to a digital platform requires a major undertaking of high-stake proportions. Company vision and business strategies may need to be rewritten, establishing collaborations with fintech companies, and revenue outputs allotted for a digital department for oversight. These considerations when overcome can reestablish banks’ foothold in the financial world where they reign supreme.