Over the past year, banks around the world have, out of necessity, shuttered branches and restricted access to basic in-person services on which customers had come to rely. The convulsions of the Covid-19 pandemic cast the industry’s present challenges in stark relief.

With customers less able to access their trusted local branches, they continued to flock to new fintech products and tech-fin offerings (think big-name tech firms integrating financial services into their platforms). These newer market entrants often come with the promise of a slicker or simpler customer experience—meeting customers where they want to be, instead of forcing them to come to you. It’s straightforward yet effective and has created a golden opportunity for these enterprises to penetrate many banks’ customer bases.

Some 43 percent of consumers told services consultancy EY that the way they bank has changed due to COVID-19. Yet such trends are merely an acceleration of what had been happening over the last decade, especially among the young and tech-savvy.

Banks are feeling the pressure. Their digital transformations have paid off handsomely during the pandemic, with financial services firms leading the market with better than expected earnings in the first two quarters of 2021. At the same time, many of the new services driving greater earnings are also driving greater competition. As many as half of all financial product purchases among 56,000 consumers surveyed by Bain & Company went to a firm other than the respondent’s primary bank.

To keep these customers, banks have to be able to meet customers’ needs in more ways and more places. To do so will require these financial institutions to reimagine their core utility for a new era of customer centricity.

“Trust has been the true means of exchange between society and its financial institutions for

as long as banks have existed,” Sarah Diamond, IBM’s global managing director for the Financial Services Sector, pointed out in a recent interview with Industrious.

Banking customers need services that are accessible anywhere.

When combined with new technology platforms like cloud and AI, banks’ longstanding stores of trust can give them the edge they need—so long as they can harness the tech to deliver the financial services and products customers have come to expect. Supporting communities and exceeding customer expectations are an unbeatable combination.

Banks just need to find the formula to provide both as well or better than their newer competitors.

Anytime, anywhere

As the nexus of banking activity transitions away from the bank and toward the customer, digital-first services are becoming the primary mode of engagement.

Banks need to put mobile ahead of marble when it comes to building dynamic new experiences and offer products in an omnichannel fashion. They’re not only competing with the bank across town or across the country but with the latest innovations coming out of Silicon Valley.

“There’s a strong desire across banks to have a refocus on human interactions,” Likhit Wagle, general manager for global banking and financial markets at IBM, said. “The pandemic really exposed the digital divide. We’ll have to look at providing digital solutions that meet the needs of the small businesses, the senior citizens and other unbanked populations that need our services as much as anyone, or even more.”

Just as today’s empowered shoppers expect retailers to provide in-store product availability via a digital app, banking customers expect an integrated and consistent experience across every channel. They want services tailored to their preferences that are accessible anywhere.

This means that banks need to think beyond the core mission of executing secure transactions. Although this remains a central utility for banks for the foreseeable future, they also need to be able to leverage all the data provided by the customer to improve and personalize the experience across every channel.

AI for customer centricity

It’s going to take more than a shiny app for banks to compete against tech giants. Banks will need to reimagine their entire information architectures at the most fundamental level.

“The banks have to fix the legacy system problem,” said Jean-Philippe Desbiolles, global vice-president for data, cognitive and AI for Financial Services at IBM. “The continued reliance on legacy systems is becoming a real issue, especially with regard to quickly scaling AI and data quickly.”

Desbiolles sees three key areas where AI will facilitate the fastest, biggest ROI.

AI tools allow customization based on preferences and financial circumstances

The first is decision support, broadly defined as intelligent systems that facilitate better decision making across the organization, such as fraud detection, risk assessment and customer creditworthiness. The second is client personalization, whereby AI tools allow banks to provide a more customized experience for each individual customer based on their preferences and financial circumstances.

Thirdly, Desbiolles sees banks, now empowered with more data than ever before, to serve not only as transaction facilitators but as personal financial wellness consultants. “I think this point is very interesting,” Desbiolles said, “because it is positioning the bank not only as a commercial partner, but also a partner who is helping you as a customer to better manage your financials.”

But such innovations, Diamond stressed, will need to be explored with care and diligence.

“Banks have to be principled, high-integrity custodians of data, and not abusers of data,” she said, underscoring the importance of trust and transparency in AI. “AI predominantly relies on historic data with the potential for perpetuating unintended biases. Banks will need to be extremely thoughtful about how they push for efficiency in applying AI tools, so they can balance customer benefits, data protection and overcoming bias.”

Opening up

Similar diligence will need to be demonstrated in another trending area: open banking. This practice promises a way for banks to accelerate their digital transformation journey.

By strategically opening up access to specific customer and operational data—while complying with the appropriate regulatory frameworks every step of the way—banks can adopt and better capitalize on innovative third-party services. Secure yet simple integration with those partners’ applications and APIs is a crucial step.

To compete with big tech companies, banks must, to some degree, become tech companies.

Bharat Bhushan, IBM’s CTO for Banking and Financial Markets in Europe, has been involved with open banking since the European Banking Authority announced PSD2, the Second Payment Services Directive. Bhushan argues for banks to differentiate between core and secondary services, and to take an incremental approach.

“In some cases you may give up some parts of your business that are non-core,” Bhushan said. “And just because you don’t have that customer interaction directly on a mobile app, doesn’t mean that you’re not important in that business. It’s about choosing where you want to focus.”

Core competencies

The pandemic hit the banking industry hard. Fortunately, banks have something that Silicon Valley players don’t: consumer trust. Serving as a trusted intermediary between savers and borrowers with care and attention to their every need has always been the heart of banking, and some prominent brands have built this trust over a century or more.

Bank’s deep-rooted relationships are a core differentiator, but they won’t be enough on their own. “The survival of individual banks may depend on new information technology architectures that deliver the scalability of a tech-fin and the agility of a fintech,” Diamond said.

In other words, to beat the tech companies, banks must, to some degree, become tech companies.

The pandemic demonstrated that banks can’t afford to continue with business as usual. Banks need a clear-eyed information architecture transformation strategy that involves omnichannel engagement infused with AI and enabled by strategic collaborations with third party technology partners. With these goals in mind, banks can become the institutions customers need now.

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