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David Jackson, MBA
David Jackson, MBA
Articles (8)  | Author's Website |

Rise of New Technologies Revolutionizing the Banking Sector

Fintech has caused a massive disruption in the financial services space

July 11, 2018

The rise of the powerful application-based interfaces (APIs), standard open banking protocol and ability to mine large quantities of customer data has led to disruption of the ways through which legacy banks and financial institutions interact with their customers.

Democratization of the service consumption and delivery model, and greater accessibility of the latest technologies to consumers and service providers, have not only unlocked hidden value in the banking ecosystem but also allowed customers to use services whenever they want, wherever they want, and however they want (rise of responsive user interface and design concepts have led to greater synergy between various mobile devices).

Today, a savvy digital marketer has more customer data and insights than he could have ever imagined, skimmed from interactive and transactional behavioral traits that the tech-savvy customers exhibit. This also allows banks to be more proactive and prepared rather than just react to the changing market dynamics.

Disruptive digital technology trends and their impact on the BFSI sector

The following are the key changes that banks need to keep in mind in order to remain relevant:

1. Invest in and upgrade data collection and analysis centers

Traditional banks have often ignored the need to upgrade the outdated data collection methods to the latest ones, simply because they have believed that as custodians of the wealth of their customers, they are solely responsible in guiding customers and telling them what’s best for them.

The need to take feedback at every single customer touchpoint was never felt, however. Thanks to a rise in multiple digital channels and secondary-level financial players, unfettered by legacy issues, customers expect banks to understand their evolving and fast-changing needs and preferences, and devise strategies and services accordingly.

They want speed, the convenience of being able to find all the available financial services and data at one place, and the ability to transfer and access funds in real time. And they want all of this without being hamstrung by issues such as security breaches, incoherence that can affect interoperability of devices and lack of personalization of services.

With more resources being allocated to collection of humongous amounts of data and analysis, the cost of acquiring and retaining customers is coming down, even as banks race against time to hold onto their traditional customer base.

This is not only allowing banks to tailor their services and products in accordance with specific demographic and individual needs, but also scan and analyze risk levels of consumers in matters of minutes. These tasks are necessary in an age where instant approvals are increasingly becoming the norm rather than the exception.

2. Invest in open banking infrastructure

Open banking may not only improve personalization of services, thereby leading to recapturing of the customer trust, mindshare and wallet share that the major banks had lost after the global financial crisis of 2008, but it may also soon become mandatory in most countries.

It is, therefore, incumbent on the legacy lenders to start investing in APIs, or partner up with digital-native fintechs that will help them create and share customer data with partners and gain insights in return. They will also manage to analyze customers' wants in real time and also reduce their exposure to bad loans.

3. Invest in data-intensive models and interfaces

Without proper data, creating customer-centric policies and end-to-end customer experience is impossible. Many experts have predicted that, eventually, the current banking ecosystem may evolve beyond financial services to become a platform-based marketplace where different competitors would try to fight for market share and customers' attention.

This will push boundaries and improve the quality of services while being mutually beneficial. While customers will be able to monitor and optimize their banking relationships without the need to use complicated technologies or the need to jump from one website to another, the banks would be able to minimize their costs and increase their profits.

4. Strengthen digital payment architecture

With many more physical bank branches likely to become defunct, banks will have to invest more money and time in order to galvanize mobile wallets and other digital payment networks as the tech-savvy millennials and other generations refuse to waste time in banking queues at branches and want to complete financial transactions from the convenience and privacy of their homes.

With WhatsApp offering its own mobile payment app, and other major technology players improving the UI and UX of their own payment networks, banks have no choice but to integrate these payment systems into their own delivery channels.

This has not only increased the value and speed of peer-to-peer and customer-to-merchant payments but also helped banks increase the effectiveness of their marketing efforts and customer loyalty. Today, banks can easily keep customers loyal by offering cashback or other rewards rather than spending billions on advertising that is slowly losing its shock value and ability to grab eyeballs. This has lowered costs significantly.

5. Customize services according to needs of a particular demographic segment While Millennials are the most tech-savvy generation, they’re often hobbled by lack of financial stability and independence. The Baby Boomers and the Seniors, still around, are increasingly becoming more aware of the benefits of the latest digital technologies and are adopting them to carry out their financial transactions.

These generations are extremely wealthy and have massive purchasing power. Lenders need to understand that pitching or introducing an idea or concept for a product or service to these generations is different than those used by the Millennials and the later generations. Lenders must create strategies for different demographic groups separately and market products or services while keeping the demographic shift in mind.

Synergistic approach key to bottom line and survival

With a proliferation of smart devices and more powerful APIs, it is imperative for banks to focus on technological and marketing innovations.

Doing everything alone may not be feasible. Striking up strategic partnerships with digital-technology-enabled players can help them lower the cost of their overhead and also react faster to changing market situations and opportunities.

About the author:

David Jackson, MBA
As a financial writer, I am in the unique position to actually put my money where my mouth is. I have never HAD to work in my life (my dad left me and my brother a tremendous trust fund). I wanted to learn finance so I spent several years in several different VP and sales positions at various financial and investing companies. Now, I write about my experiences with these investments and other trends in finance.

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