Digital Banking: A strategic response is required by heritage banks

Digital banking has long been considered the ‘future of banking’. We’ve seen numerous market entrants look to bring customer-led propositions to market to bring the experience customers have come to expect from all their online services.

By Sarah Carver, Head of Digital & Trevor Belstead, CIO Wholesale Banking & Post Trade, Delta Capita

This expectation has increased with the pandemic, which effectively operated a digital-first experiment, forcing banks and customers to embrace it. Over the past year, consumers have got used to doing almost everything online.

This has led to a fundamental shift in customers’ expectations with them now expecting this level of ease on everything, including their banking. In parallel, banks have seen the potential for both the NPS improvement and reduction in cost to serve through increased self-service by investing in their digital channels.

Digital banking is not a new trend; branch usage has been in a gradual decline as banks have continued to invest in digital channels and reduce branch density. However up until now this customer shift has been a gradual process and the experience (or lack thereof) hasn’t been sufficient to make customers switch en masse to digital challenger banks as their prime account. Albeit many have dipped their toe in the water with Monzo, Starling, Revolut amongst others as a secondary account. However, this shift has sped up over the last year with 27% now having an account with a digital-only bank in the UK.

So why are people opening digital-only accounts? Convenience is, as expected, reason #1 with 26% citing this, closely followed by users wanting a ‘secondary account’ and finally ease of transferring money. However, it’s not all about functionality and servicing; 1 in 10 consumers are still drawn predominantly by the brand, citing the ‘cool cards’ as a reason to get an account. This is a more challenging one for the heritage banks to contend with given their brand values driven by trust, security, steadfastness rather than a challenger which can ooze coolness with a neon or metal card and informal website copy which connects with customers on a more personal level.

How can heritage banks respond?

• Ensure you are not held back by your legacy stack: This is the number one challenge we see with our clients. Where, in the desire to digitise and create that perfect customer experience, there’s a sidestep around their legacy technology. Without tackling this challenge, the spaghetti junction of systems can prevent the organisation from doing anything quickly or add a burden of cost which limits where the spend should be going, which is differentiating that front-end customer experience. It’s perhaps not the most glamourous part of the digital transformation for an organisation but it is a critical one.
• Validate tactical tech: At the start of the pandemic, banks had to react and adapt in a very agile and quick manner. Depending on the level of digital maturity many had to quickly spin up digital banking solutions and embed new tech to deliver to their customers. However, now it’s critical to take a step back and ensure that all tech is strategic and integrated in a way that ensures it is future-proofed. This is a particularly challenging area given in some cases there has been large investments made but now is the time to ensure that what you’ve got is not just ‘good enough’ given digital banking will only grow over the coming years.
• Really take the time to understand your USP: Partnering has become the standard in the industry with an increased appetite to partner or buy rather than build in-house. This has hugely expedited delivery and has also ensured organisations aren’t investing unnecessary budget in what is ultimately non-differentiating services. However, there is still a need to invest in research and understand your target customers. Stepping back with a critical lens is important because if you streamline your digital journey but it’s still essentially a non-differentiated vanilla offering, you’re not going to see the adoption you expect. This can be through many different guises, new product or service offerings, brand positioning such as sub-brands to target different segments and critically understanding and utilising your data to speak to your customers in a far more targeted way.
• Do you have the right business model: The evolution to digital banking is not just technology, it is organisational and business focused as well. To really achieve a digital bank, the organisation itself must become digital and agile across the board. Traditional banking models that were previously used in the branch cannot just shift as is to meet the digital ecosystem the bank needs to operate in. The organisation needs to look at its business model across the board, starting at customer servicing, product development, operations, and technical delivery.