Capturing the digital transformation trends in 2022 can help banks better orient their activities in the foreseeable future. With increasingly competitive market and ever-rising demand of users, it is vital that banking businesses possess a strategic view to carry out digital transformation successfully.
1. Customer-centric strategy
It has been shown by research that customer retention strategies help banks reduce the cost of attracting new customers by more than 30%. This has helped businesses speed up operations by roughly 1.5 times and increase revenue by more than 80% in just under 2 years(1).
However, this is a complex strategy and is not easy to implement. In order to retain customers, banks must have an understanding of what users desire and demand. Accordingly, they can create many meaningful experiences and build long-term relationships with customers.
To ensure the success of this strategy, the board of management needs to have a clear vision and direction. Such a customer-centric mindset should not only be applied to operating processes or products/services but also needs to be ingrained in leaders perspectives as well as bankers’, thereby helping to shape a unique corporate culture.
In fact, customer-centricity helps banks achieve a growth rate of 3.2 times faster than their competitors(2). Usage of customer data throughout the approaching processs while they are using services is the fundamental foundation for the success of this strategy.
A prime example: J.P. Morgan Chase, a multinational U.S. financial services and investment banking company, assessed customer data in the most detailed fashion. Based on subsequent analysis, it decided to provide advice for customers at every stage of the development journey, which did help enhance customer experience.
2. Mobile Banking
Brett King, a banking expert and also author of Bank 4.0: Banking Everywhere, Never at a Bank said: “The future of banking is not just about new thinking around value stores, payment and credit utility… The coming Bank 4.0 era is one where either your bank is embedded in your world via tech, or it no longer exists.”
This shows that the trend of digital transformation will focus on digital banking, which will potentially become the main operating model of banking businesses.
Such a change means that the quality of customer service depends on technological capacity. That said, the ability to instantly meet the needs of users 24/7 on mobile and computers is also an important factor.
The transition to digital banking has become essential in the context of social distancing due to the Covid-19 pandemic. Between 15% – 45% of customers expect to continue to cut back on branch visits due to fears of the pandemic, which eventually leads to increased demand for e-banking services(3).
3. Focus on investment, exploitation and application of data
Data, the energy source of the new era, is playing an increasingly important role throughout the operation of financial institutions as well as finding and engaging with customers. Specifically, every business creates data, whether in the printed form, software or data in the software, etc.
However, not all banks can effectively invest, exploit and use these data. Therefore, an important digital transformation trend in 2022 is to focus on investing and utilizing data in corporate operations.
A real-life example:
BNP Paribas, a French bank based all over the world, used data visualization technology to create visual image of regional data in just a few minutes. With that information, the management board can easily make decisions suitable with the market and local trends such as:
- Choose the location of the new ATMs,
- Identify potential prospects based on location
- Evaluate local branches based on a number of indicators, including the extent to which customers use online banking in each area.
The solution aims to exploit and make optimal use of data sources. Many banks and financial institutions have fostered using and focusing on combining data and AI at work. The most popular applications include:
- Automate back-office tasks.
- Personalize customer experience.
- Virtual assistants based on collected data source.
The application of AI technologies is estimated to raise up to $1 trillion added value per year to the banking sector worldwide (4).
4. Invest in back-office processes, improve data usage
In order to enhance customer experience and ensure a customer-centric culture, investing, enhancing and improving back-office processes will also play a fundamental role. This trend can make customers more satisfied due to increasing demand for simpler, quicker procedures and more accurate and convenient solutions.
By digitizing the back-office process with digital tools, banks will minimize manual tasks in document management and storage. As such, oversight in the operating process will also be significantly minimized.
A common solution that has been adopted by many banks to digitize the process and avoid replacing older systems is to build additional applications around existing core systems. However, such upgrades have resulted in duplicated processes or delayed processing times.
To improve the efficiency of back-office transformation, banks and financial institutions should not only stop at the digitization step. What needs to be done is to ‘start again’ by evaluating current processes. Banks should learn how to eliminate and optimize steps with new technologies such as RPA, AI, IoT to automate and increase efficiency and improve customer experience.
- About 3/4 daily operating processes (e.g., administrative tasks – aggregation, management and payment of invoices, etc.)
- Up to 40% of other strategic activities (e.g., financial reporting and control, financial planning and analysis…) can be automated using technologies such as RPA, AI, IoT, etc. (4)
As a result, banks can cut costs and reap rapid growth in revenue thanks to its rapid service delivery facilitated by a high level of automation.
For example, intelligent process automation (IPA) technology has helped Deutsche Bank improve its working productivity and minimize errors when it achieved the automation level of 30-70%, depending on the process.
Meanwhile, Goldman Sachs has increased the use of machine learning technology to optimize its trading procedures. As a result, Goldman Sachs only needed 2 traders on the stock exchange, instead of 600 in 2000.
Banks that don’t focus on improving back-office processes will soon be at risk of being left behind by technology-oriented banks or even tech companies that provide banking services.
5. Focus more on openness and transparency
Keeping up with the current trend of digital banking and with increasing competition, banks need to build trust with customers. According to a study by Statista, more than 40% out of nearly 60,000 respondents regard trust as the most important success factor for a bank.
In addition, a recent survey by CSIweb has also shown that over half of customers will stop using the bank’s services if there is a privacy violation (5). Such a need for trust has required banks to create an open and honest environment for customers (6).
In line with the current digital banking trend, banks will also need to focus more on openness and transparency instead of relying solely on typical banking operations.
A prime example:
Monzo, a U.K. branchless online bank, has succeeded in attracting and retaining over 5 million users in just six years since its inception (2015-2021).
Its success is not only attributed to the great convenience created for its customers when every procedure can be done with a mobile app. The deciding factor also lies in the bank’s outstanding openness and transparency.
Since its inception, Monzo has actively spread internal information, experimenting activities, product implementation roadmaps, and new programs for customers through its application and the Monzo Transparency Dashboard website. Monzo also set up forums to create an open community between customers and Monzo Bank.
6. Strengthen cooperation between banks, financial and non-financial companies
Since traditional banks are often large-scale, there are too many old IT systems or banking business processes to be able to carry out digital transformation immediately. That is why many banks are now strengthening collaboration with fintech companies and startups to bring innovation and convenience to customers. As a result, banks can use more modern and optimal digital technologies and processes without having to start from scratch.
For example, Commerzbank partners with IDnow to verify customers via video call. FidorBank has partnered with CurrencyCloud for its Electronic Payments system. Similarly, Bankia has partnered with Euro bits to provide invoicing services for small and medium-sized enterprises.
Furthermore, there is more and more cooperation between banks and non-financial enterprises (electricity, water, telecommunications, educational institutions,…) and other financial enterprises. This has created a banking ecosystem (or Open Banking), which helps keep customers at the center, and give them a wide range of options, convenience, and personalized experiences.
To become an open banking, banks can open application programming interfaces (APIs) for third parties to access their data or functions. As a result, banks can provide customers with an end-to-end solution or a variety of products and services (financial and non-financial) from multiple third parties.
Although the open banking model has not been complete in Vietnam, the State Bank is already building, testing and gradually perfecting the legal framework for open banking. In fact, many banks such as Vietcombank, Vietinbank, TPBank are applying Open API technology to connect with payment intermediaries, e-commerce and utility service providers.
The trend of digital transformation in banking brings many benefits to organizations in the financial sector; however, depending on the business model, development goals and market preferences, banks can apply one or more different trends to achieve success on the path of digital transformation. In addition, with the knowledge and ability in digital transformation for the financial sector, FPT Digital is ready to accompany businesses to become a comprehensive e-bank.
(1) Finextra. 2021 Digital Transformation in the Banking Sector: the Keys of a Successful Launch
(2) Kameloon. 2021 18 stats to understand the future of CX optimization and banking
(3) Global Data Insights. 2020 AI-Bank Of The Future: Can Banks Meet The AI Challenge?
(4) McKinsey. 2020 AI-bank of the future: Can banks meet the AI challenge?
(5) Geniusee. 2022. Top 10 Digital Banking Trends For 2022 – Reshaping The Banking Landscape
(6) Statista. 2021 Most important factors for bank customers worldwide 2021