Digitization of the banking and lending sector in a post-COVID world
“Longevity in this world is being able to reinvent yourself or invent your future.”
— SatyaNadella, CEO of Microsoft Corporation
We are living through historic times. Stories about the Coronavirus lockdown will be told decades into the future; and things will never be the same for anybody. Every industry in the world has had to undergo immense changes in order to stay afloat, and the same goes for the finance industry.
The virus brought a need for social distancing and quarantining, and real-life transactions and conversations became a luxury nobody could afford. All of a sudden, the internet became a much more important commodity for survival. Going digital is something banks and financial institutions have been trying for years. The time has finally come.
Essentially Digital Services
Banks and financial institutions were declared to be essential services, required to work even when the entire country remained in lockdown. Working with a skeletal staff in times when social contact could ruin your life served as a harsh reality check for both financial institutions and banks—reminding us all just how important digital banking can be. Consumers now have to choose between risking their lives and visiting a physical branch, or staying safe at home and risking the security of their bank accounts by visiting their bank’s mobile app.
Before COVID-19, visiting the bank’s physical branch was commonplace: to open a new account, to cash cheques and transfer funds. But during and post-COVID, customers will quickly turn to digital alternatives to the physical branch.
Alex Kreger, founder of UX (user experience) design agency UXDA said, “In conditions of social distancing raised by COVID-19, consumers may now divide financial institutions into ones they can use without leaving home, and those from where it is better to close their account,”. Banks which seek to establish a secure and safe digital banking ecosystem have a much higher chance of keeping surviving these times.
“We have had digital products for many years now. The adoption was also good but it wasn’t as wide as we would have liked. But with the crisis, even people who were reluctant to move to digital are now considering a shift,” RajatVerma, head of Commercial Banking at HSBC India said to Hindu Businessline. He added that “There is a mind-set change because the advantages of digital are becoming more and more clear.”
It is therefore, an established fact that a digital banking platform is very important. But how would this digital experience be like for the customer, and how can banks and the lending sector adapt to the new demand for digitalization?
The shift to digital
In an article he wrote for Economic Times, Sunil Sanghai, the CEO of NovaDhruva Capital says this: “With the right leadership and regulatory support, a completely electronic banking experience of ‘Anybank, Anywhere, Anytime’ is not out of reach.”
There are three things a bank has to ensure when it makes the shift towards digitalization.
- A seamless user experience
- Security and privacy
- Mobile-centred approach
User Experience:
According to a study by Kantar, a company that provides data and insights into consumer behaviour, “Financial institutions that lead in customer experience (CX) have a higher recommendation rate, a higher share of deposits, and a greater likelihood that customers will increase their portfolio of new products and services from their bank. While financial institutions that let their customer experience decline, risk losing up to 12.5% of their share of deposits.”
This shows that customers prefer using the services of banks that focus on the experience a customer has. While using a mobile app or while browsing through the bank website, there are things that may make a customer’s experience more worthwhile. The colours, the fonts used, the interface of the website, even simple things like swiping through the modules contribute to a better digital journey. According to Deloitte, 38% of customers say user experience (UX) is the most important factor when choosing a digital bank. Investing in a good UX design agency and software developer is definitely worth it.
Digital Security
If there is one thing that keeps customers from moving to the digital platforms, it is the doubtful security. Trusting your money to the internet seems very counter-intuitive, so it is up to the bank to make sure the customer feels safe and protected while transacting online.
A recent survey from cyber-security technology company OneSpan on more than a 100 banking professionals revealed the following things about the digital-ready customers.
- 80% of the financial institutions in America (where the survey was conducted) stated that “streamlining the digital account opening process and acquiring new customers” is the new top priority for this year; strengthened only by the COVID-19 lockdown.
- 64% of the respondents confirmed an increase in the budget dedicated to improving digital account opening to help improve customer experience and therefore increase customer acquisition.
It is imperative that banks implement secure frameworks and systems to prevent cyber fraud, and ensure that the bank does not succumb to risks like money laundering, data loss, identity theft and privacy breaches. Customer authentication, firewalls, smart networks and rigorous KYC are some of the ways banks can protect themselves and their customers.
Mobile-centred approach
More than 60% of the world’s population own mobile phones, according to GSMA real-time intelligence data. This means that more than half of the people on this Earth have access to a mobile device, making the internet more easily accessible than ever. Therefore, if banks and lending services want to go online, the easiest and most rewarding way would be through the mobile phone. Creating and securing a mobile app, where customers can borrow money, pay loans, transfer funds and make payments, all while ensuring their safety and security should be a priority for any bank that wants to sustain itself.
Since the lockdown, there has been a 20% increase in the use of SBI’s YONO app, according to PrakashSukumaran, the assistant general manager of the SBI Digital Banking Wing.
Conclusion
Rajesh Pamar, a consulting partner with TCS’ Banking Financial Services and Insurance group listed down three “time-horizons” for which banks need to define a strategy to survive in terms of lending processes.
The immediate term horizon, where banks need to take advantage of the reduced interest rates to help customers and retail.
The short term horizon, where banks need to roll out digital capabilities and strengthen the customer self-service channels to service credit requests.
The medium term horizon, where banks would have to focus on building a sustainable business model and design products to fund sustainable businesses.
After the lockdown is lifted, and the economy struggles to get back on its feet, it will be up to the banks and the lending sector to undertake market interventions and go beyond just the lending functions in order to speed up economic recovery and contain the impact of the COVID-19 on all of us.