The evolution in customer behavior, rapid innovation in digital technology, burgeoning regulatory requirements, and the macroeconomic environment are seemingly the four key drivers shaping the future of banking.
1. Customer Behavior
The new ways consumers get information and go about their lives is profoundly different from the customer behavior norms of yore. Increasingly, customers are looking for digital interactions that are simple yet aesthetically appealing, highly personalized and context aware so that the need of the moment is served quickly without cumbersome intervention from the service provider. Customer Experience (CX) is now the decisive competitive differentiator between banks, more so than just the breadth and depth of their products and services portfolio.
2. Digital Innovation
Advances in digital technology are offering a myriad of channels for customer interaction. Channels like online and mobile banking have already changed how customers engage with the bank. Customer interaction through digital channels is also generating valuable behavioral and transactional data. Analytics on this newly available data enables even more meaningful ways to engage customers.
Ever since the transaction mix started favoring digital channels, most industry analysts and technology service providers have been calling out the underlying technology imperative. However, what is often overlooked is the operational transformation and process optimization required to profitably support the morphing operating model. Furthermore, as the operating model transitions to support this bias towards digital interactions, back office systems such as Core Banking and CRM will also need to be modernized to provide requisite functional capabilities.
3. Regulatory Compliance
Increasing regulatory pressure is one of the legacies of the recent financial crisis. The cost of compliance as well as non-compliance continues to be on the rise. In many scenarios, streamlined customer interaction and low-touch transaction processing made possible by the ubiquity of digital channels will help mitigate various risks associated with regulatory compliance. Moreover, a number of compliance initiatives can generate information and context that can be channeled towards revenue creation.
4. Macroeconomic Environment
The interest rate trends and after-effects of the financial crisis have created a tough operating environment for banks. At the time of this writing, the return on equity and return on assets for banks in the US is close to the lowest it has been over the past 12 quarters. Return on equity remains below the cost of equity. Now, more than ever, banks are looking to eke out incremental profitability from product and service innovation deployed via digital channels. However, such profitability can only be achieved via efficiencies derived from requisite operational changes and process optimization.
The confluence of the four drivers above continues to accelerate the convergence of banks and their customers towards the uptake of Digital Banking. Given this climate, it is imminent that future strategy and technology roadmaps will focus on most, if not all, of the following:
- A digital Customer Experience (CX) focused on customer delight
- Data Management and Analytics for personalized & context-sensitive customer interaction
- Operational Transformation & Process Optimization to support morphing operating models
- Enhancement of Core Banking, CRM, and other key systems for requisite business capabilities
- Digital Marketing platforms to effectively harvest in-the-moment business opportunities