Banks need to narrow the distance with customers, to offer them an array of contact points, and to better understand their behavior and needs. New banking models start with establishing frictionless relationships with customers.
In other industries, new business categories have been emerging one after another based on frictionless processes. In the food industry such as catering and food services, placing and receiving orders via smartphones or digital devices has become the norm; in e-commerce, one-click product selection and purchase functions have become commonplace. At the same time that the emergence of frictionless processes has increased the expectations of customers, financial institutions are by and large being left behind.
The times are gone in which products and price are the top differentiating factors. The customer experience that is part and parcel of the customer’s everyday life—that is to say, building a frictionless customer relationship—is emerging as the differentiating factor that is most important to foster a long-term customer relationship and to secure business opportunities.
This prompts the question of how capable are Asian banks at establishing frictionless customer relationships. Banks might set up branches in central areas or in prime suburban locations, provide call centers and offer Internet banking, but unfortunately, when it comes down to it, these are all relatively distant. If a bank is to aspire not only to understand the daily behavior and needs of customers and to provide timely and unique product services, but also to provide the additional something that gives customers a “Wow!” experience that exceeds their expectations, then this must be rooted in a foundation of frictionless processes.
Frictionless processes require that banks be frictionless organizations. Currently, bank structures are geared to be “product-out” organizations that are based on generating product services. Financial transaction processes rely on core systems that lack flexibility and a value chain between branches, headquarters, and affiliated companies that is characterized by a closed institutional structure. At the same time, a "digital bank" realizes customer relationships with no distance by being a customer-centric customer-in organization, in other words, by transcending core systems and organizational barriers. An operation that is able to provide a customer with the optimum, perfect product service the instant that customer visits to consult about a home mortgage is only something that is possible with a frictionless organization.
In addition, frictionless processes do more than enhance the contact points with customers and origination in all processes from the start to the finish of a transaction, they also optimize the cost structure. Moreover, they forge links with the brand experience, new capabilities (data analysis and process automation), appropriate business models, and organizational structures which together bring a chain of economic value—a chain that begins with digital transformation.
The implications of digital banking
For banks that embark on a digital transformation, adopting an approach that strives to realize digital banking itself can be regarded as a step toward modernization. Celent's advice when it comes to such digitalization projects can be summarized as follows:
1. Vigilantly watch the market.
– Keep an eye on the market, particularly scrutinizing the moves of successful players.
– So far, financial institutions have not been at the cutting edge of digital.
– It is crucial that they look beyond bank financial services, turning an eye to non- bank financial service providers and new product services. Seek opportunities to acquire skills and abilities toward this end, while cultivating possible collaboration through partnerships.
2. Focus on the customer experience: it is the source of value and top priority.
– Change products and services, employee awareness, and organizational style so that they are all customer focused. This will require a reform of corporate culture and review of recruitment approaches.
– Remember that the lifestyles of the digital generation often differ from those of the analog generation.
– Until banks understand, take an interest in, and are invested in the digital experiences of the customer, they will become customer-centric institutions or even truly enter the ecosystem of customers’ economic activities.
3. Bring flexibility to investments: Flexibility is essential when it comes to both business and technology.
– Digital customer behavior can change easily and suddenly. Investments should target acquiring the ability to respond to sudden change and to secure a degree of freedom in business strategy.
– System flexibility translates to greater business options and can support business strategy. Conversely, a rigid and fixed system cannot keep pace with digital customer behavior, and can cause a bank to become isolated.
4. Monetization mechanisms: Digitalization can only continue if it contributes to increased revenue.
– Banks should endeavor to build a model that maximizes customer value; this will maximize bank revenue. Following this logic will allow institutions to be flexible enough to accommodate regulation and changes in the economic environment.
5. Develop a roadmap: Formulate a roadmap focused on concrete resources and knowhow that needs to be instituted, rather than slippery ideas of functionality it would be nice to have.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
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Eiichiro Yanagawa is a senior analyst with Celent's Asian Financial Services group and is based in the firm’s Tokyo office. His research focuses on IT strategy issues in the Japanese and Asian banking and financial industries.