Online banking launched two decades ago, precipitating the banking industry’s dependence on technology as we know it today. It was a challenge to get consumers comfortable with online banking (as it was with ATMs), and transitioning them was slow and painful. At the time, banks were driving technology to their customers.
When smartphones gained popularity after the launch of the iPhone in 2008, there was a great deal of apprehension from consumers and banks about the security of banking apps and the potential risks of enabling mobile banking. Using a phone to deposit a check wasn’t even on anyone’s mind, as ATM check scanners had only launched in the early 2000s.
In 2018, banks no longer need to drive technology or prove its value to customers. Consumers now demand technology at a pace we’ve never seen before. Thankfully, banks have overcome their apprehension around app security and seem to be bolder and more open-minded when it comes to all things tech-related. All of this is largely the result of the recent fintech and challenger bank competition sprouting up in familiar and unfamiliar places.
Banking on technology
The new generation of banking customers is all about that digital life. More than 97 percent of millennials ages 24 to 35 have a smartphone capable of mobile banking, according to Nielsen. Banks must move more quickly and nimbly to meet the ongoing expectations of the next-generation customer. The experience that these consumers demand is driven by those they have using Amazon, Facebook, Instagram, etc. They expect the same easy interface from their bank and if they don’t get it from their bank, they will get it from one of the popular non-traditional providers in the banking space.
And it’s not just next-generation customers—the current generation still accounts for a substantial amount of bank revenue. According to an article in FinancialPlanning, high-net-worth (HNW) investors are often overlooked when it comes to digital advice. The article cites research from a Capgemini World Wealth report stating that 65% of HNW investors believe sophisticated digital channels are highly important. Another Capgemini report found that “66% of individuals with between $1 million and $5 million in assets would leave their wealth manager if they experienced a lack of integration between digital and traditional channels.” The report also notes, “In the most extreme scenario, firms and wealth managers could lose an estimated 56% of their net income should they not upgrade their technological capabilities.”
Driving change in the banking industry
The stats show that banks are closing down branches as paper currency usage declines and digital banking transactions increase. For remaining brick-and-mortar branches, the “branch of the future” has changed how banks approach the branch experience, with a friendlier, more relaxed approach using technology like virtual reality and digital human tellers.
In a recent episode of S.M.A.C. Talk Technology Podcast, we met with Falk Rieker, the leader of SAP’s banking business unit, who explains how banks must adapt to the digital space: “In the digital age, everything around banking takes an odd place outside the bank, with the customers. So banks need to become part of the value chain of their customers. If we are talking about personal banking, meaning retail banking, and if we talk about corporate banking, same procedures. You know banking needs to be where the customers expect banking services, and that’s not exactly in the bank. By accepting the trend towards online transactions and services, banks are moving in the right direction that customers expect them to go.”
But are banks moving fast enough? Will they fail if they do not go all-in with mobile? Will some areas of banking always need a physical presence? Bottom line: individual banking institutions will need to answer these questions for themselves. By evaluating the needs of the customers, banks can define their digital banking expectations. This comes from places where digital consumers hang out.
Going social with banking
Social media is leading the way in connecting banks with customers and allowing for greater data collection and insight. Social provides a place for banks to offer customer service. For example, American Express was a pioneer on Twitter with @AskAmex, which provides customer service in real time and in a public social forum. Customers can also instantly comment and message their bank via social media with questions or complaints. This instant connection is what banking customers have come to expect in 2018.
Social media also gives banks easy access to Big Data about their customer base. On the most basic level, banks can see which customers are complaining about service and use this information as an indicator of who will likely leave. Rieker explains how this works at the Big Data level: “You want to understand which customers are at risk to switch to another bank. [It is a] very cumbersome process to find that out. It probably involves Big Data, not only the data you have about the customer but data you get from social media and other sources.”
Based on that combined collected data, Rieker says, banks will need to come up with the framework that recognizes certain patterns about customers that are at risk of attrition. That is where banks should use Big Data, as well as machine learning techniques, to understand these customer patterns and proactively reach out to customers. After a customer has decided to leave the bank, it’s too late. This is the prime example of technology in action for banks in the digital age.
Future of technology in banking
What’s next in the future of technology for the banking industry? According to Rieker, the focus isn’t on one technology but on multiple technologies working together to deliver greater business value. Blockchain, machine learning, artificial intelligence, Big Data, and analytics all play a role in automating processes, improving accuracy and transparency, and ultimately serving the customer better. For example, banks can identify customers who are repeatedly having problems using their app or online banking and help them resolve the problem and mitigate their bad experience, without ever having to make a call or step inside a branch.
We believe we will see banks using new and innovative technology in order to stay relevant and meet the needs of their expanding Gen Z and Millennial customer base. They need to use data to predict and anticipate customer needs to address dissatisfaction and attrition before it’s too late. Listen to the full podcast here.
Hear the full episode here. For more insight on digital leaders, check out the SAP Center for Business Insight report, conducted in collaboration with Oxford Economics, “SAP Digital Transformation Executive Study: 4 Ways Leaders Set Themselves Apart.”