Digital will be the next frontier for financial services industry to ingrain within itself in order to remain relevant in an emerging business scenario as fast changing technology offers innumerable opportunities while also presenting significant threats. The manner in which technology has been evolving, a conventional retail bank will have to adapt to the digital highway to remain efficient while also capturing the new business value.
Cisco, the global networking giant in its report titled: “A roadmap to digital value in retail banking” estimates that digital innovation in retail banking will drive $405 billion in digital value at stake from 2015 to 2017. “With the right technology investments, they can streamline operations and compliance, while offering customers the real-time financial advice and convenience they increasingly expect,” it said.
The financial services industry has been in the forefront of adopting technology which has been largely focused on delivering efficiencies, but digital presents a whole new paradigm. According to Cisco, by assessing, adopting, and, especially, combining the right digital uses cases for their needs, banks will capture their share of this opportunity and be in position to enable IT agility and operational effectiveness; differentiate their business strategies from those of competitors; define disruptive new digitally enabled business processes. “Banks that fail to digitise more fully will surrender value at stake to new digital competitors or traditional banks that innovate faster,” it said.
Today, there is a blurring line of difference between a conventional retail bank and technology companies. The whole system of payment gateway has opened up completely new opportunity for technology companies. “With rising pressure from agile digital competitors—whether “fintech” startups such as Wealthfront and Moven, or larger entrants like Apple, Microsoft, and Google—every financial services organisation must think like a tech company,” Cisco said.
The strong emergence of fintech companies or startups is also likely to see India playing a key role. According to Nasscom, the Indian fintech software product market generated revenues of $1.2 billion in 2015, and is expected to grow more than 2X by 2020. “With over 400 companies, India is quickly emerging as an Fin-tech products hub out of which more than 30% are mature firms with demand across regions,” it said.
The key focus areas of the Indian fintech companies are in payment processing (that include transaction gateways and platforms, online/mobile wallet, ATM & POS services, remittance and cash cards) and trading. According to Morgan Stanley, the global mobile payments could increase from $175 billion to $250 billion in coming years. This will include $45 billion in developed markets and $30 billion in emerging markets, especially considering the ongoing penetration of increasingly less expensive smartphones.
There has also been a example of a large Indian public sector bank taking onto to the digital path. According to Cisco, in India the average age of citizens will be 29 in 2020. As a result, State Bank of India is concerned with reaching its increasingly young and digitally savvy customer base. The bank created SBIInTouch, a new type of digital-banking branch, mostly located in urban areas, to help connect with these younger customers. The small branches enable consumers to interact through online kiosks, with remote experts on video and interactive displays. As a result, customers can open accounts and receive debit cards in 10 minutes; obtain instant approval for home, auto, or education loans; meet “face to face” with virtual advisors in another location; and learn about financial planning by navigating interactive touchscreens.
Perhaps the time to act is now. McKinsey & Company estimates that incumbent banks have three to five years in which to digitise more fully, while laggards could see 35% of their net profits eroded. Cisco economic analysis estimates that by not digitising more fully, incumbent retail banks missed out on $144 billion globally from 2011 to 2015.
Digitisation can create many opportunities to transform sales and services in retail banking. This includes everything from shortening queues to offering timely insights and anywhere, anytime advice. The new bank-customer relationship can be built on personalised assistance through a variety of channels, along with products that reflect a deep understanding of consumer behaviours.
According to Cisco, banks that are furthest along their digital journey are harnessing technology to define their strategies with entirely new business models. These forward looking companies are combining multiple digital use cases. Apple, Google, and Amazon (all of which happen to be moving into the banking space) have a history of combining technologies to cross industry boundaries with innovative new business models.