The sun has gone down on banking in-store within the hours of 9-5.
Digital banking has become the core of financial services. In the UK, some 14 million (27%) adults have opened an account with a digital-only bank in 2021, which means triple the number of Britons have a digital bank account compared to January 2019, according to Finder.
Despite not yet being as enthusiastic in their digital banking uptake, 1 in 5 Australians (18%) also hold a digital bank or neobank account, according to Finder. What’s more significant, however, is the fact that digital banks across Asia Pacific (APAC) enjoyed three times the growth in customer bases compared to traditional banks in 2019/2020.
And with 90% of Australians open to mobile transactions, this shift is only set to continue. With a similar story emerging across Europe, with the use of financial apps and mobile banking services increasing across the continent since the start of the pandemic, according to research by deVere Group. And it’s these digital banks that have set the expectation that financial services should be available anytime and anywhere, with the benefits only underlined further by COVID-19 restrictions prohibiting customers from visiting in-store banks.
As a result, traditional high street banks are re-evaluating the importance of real estate in how they operate, as well as how they should be interacting with staff working from home as part of the shift towards a hybrid model of working. However, as changes continue to sweep through financial services institutions (FSIs), winners and losers will inevitably emerge.
In light of this, Fujitsu’s Jason Loder, Director of Strategy and Warren Brown, Financial Services Industry Lead sat down to discuss how financial institutions are navigating and embracing change in order to futureproof their operations.
What have been the biggest challenges for banks and other financial verticals since COVID-19?
Warren: For retail banks, it's been around managing stakeholders: the community, customers, shareholders, and staff. How can a bank continue to be viewed as a good corporate citizen, especially when there are mass layoffs? Despite government relief packages, banks have had to decide where to channel those funds by balancing returns to shareholders, customer experience, and employee welfare.
This has also brought about the challenge of setting up the infrastructure to keep staff safe and connected. A lot of these systems were designed for around 5% of the workforce to work remotely. The four biggest Australian banks alone, who have 50,000 to 60,000 employees on average, had to work out how to transition 80% of their staff to remote working in a matter of weeks. As part of that, banks have had to work out how to manage performance of employees, and remain connected to the customer, which has had a major impact.
Jason: I agree. Most banks already had a digital transformation plan in place for the next five to 10 years. However, when COVID hit, they had to roll it out within eight weeks. That has been an enormous challenge, but they’ve been lucky that online banking was already something they were working towards long-term – so it wasn’t completely new.
I also think the changes caused by the pandemic have presented an opportunity for banks to show that they are good corporate citizens. Cases of money laundering, failed values, and charges to deceased clients have eroded the industry’s social license over the years. Many banks have taken the decision to restore that social license by proving themselves during the pandemic.
The COVID hardship support packages offered by many banks in Oceania is an example of this. It allowed affected borrowers, which included banks, insurance companies, credit card providers and other FSIs, to defer repayments for a period of up to six months.
How have banks been able to navigate these challenges?
W: The biggest change has been adjusting to remote working, and many banks have had to invest in home office equipment for their staff. Security has also been an important issue to address and has resulted in a lot of tech upgrades.
From a consumer-end, the banking system has traditionally relied heavily on paper, so banks have been working hard to transition as much as they can to digital. So, for example, creating e-docs so people can sign mortgage and loan documents. Many of these transitions have caused greater collaboration between the customer and the bank. By asking the customer what would work for them, banks have been able to determine that contacting them through, say, Microsoft Teams is easier than another video conferencing software.
J: A lot of automation and robotic process automation (RPA) in FSIs has focused on customer satisfaction for quite some time. For example, if you filled in a credit card application form, those details can automatically be inserted into a loan application, to avoid repeating the same information. But I think banks have now also turned their attention to how they can improve employee experience, especially when so many staff are feeling isolated from the office. By using automation to remove menial responsibilities, employees can spend time on more fulfilling tasks.
Are FSIs who have embraced change now in a better position to meet consumer demands and drive the industry forward?
W: Absolutely, without a shadow of doubt. Those who were further along in their digital transformation plans, pre-COVID, have prospered and are in a commanding market position. They had already made strategic technology decisions to digitize key processes such as core banking, product development for secured/unsecured lending, CRM data analytics and cross-channel marketing. This enabled them to grow their share of wallet, get products to market faster and offer more compelling personalized value propositions to customers than their competition. COVID-19 has laid bare the difference between banks that invested early and those that didn’t.
Do you think banking has become more human? And if so, why is it important for the industry?
J: There’s competing forces at the moment when it comes to human-centric banking. The shift away from in-person branches is actually less personal because interaction between bank staff and customers is minimized. But online banking applications are using data preferences and data-driven decision-making to produce hyper-personalized financial services.
What we’re now realizing is an opportunity to bring that human connection back into banking in different ways, using financial technology to connect with customers with more variety than before. A good example of this hyper-personalization is HSBC using AI to give customers personalized rewards, predicting whether they prefer to redeem credit card loyalty rewards in one of four categories: travel, merchandise, gift cards and cash.
Does more frequent use of data increase compliance and security challenges, especially with remote working?
J: Yes, especially when you think about the interaction between data and artificial intelligence (AI). I've heard people refer to data as new oil, and I couldn't agree more with that. However, it poses challenges. Banks have this treasure trove of data which puts pressure on compliance teams to remain compliant according to government regulations.
From a social corporate responsibility perspective, FSIs also have to ensure that both its data and AI aren’t biased. As part of this, data has to be available in a transparent and safe way. I can really see that a lot of the challenges in the future are going to be around data, and particularly how data and AI interact with each other.
There are clearly drastic changes sweeping through the financial sector, which have been galvanized by COVID-19 restrictions, as Jason and Warren point out. However, it seems the human-centricity of banking, which has been a big part of in-branch banking, remains healthy and well – albeit in a different form.
Digital banking differs in many ways from traditional banking, but being able to provide customers with the best possible service for their needs should continue to be the North Star of FSIs. And as banks battle the turbulent market over the coming years, ultimately keeping the customer front-of-mind will certainly help in carving out the winners of the financial sector.