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Sunday, February 1, 2015

Digital Banking – Lessons from channel integration




Digital banking offers unprecedented opportunities both for banks as well as customers. It has provided banks breadth and ease in delivering their products and services to customers. As for customers, it has pushed service options and expectations to a new high. Given the opportunity spectrum, it is no surprise that banks have invested heavily in upgrading their digital preparedness. 2015 promises more investments in digital banking.

A definition of digital banking will be of help here. Obviously many definitions exist. Banking transactions and experience through the internet and electronic devices - desktops, laptops, tablets and mobile phones – structure our digital banking experience. This is a simple and easy definition.

Digital banking is also the prime force that has helped in proliferation of banking services to remote areas and brought huge unbanked segments into the ambit of mainstream banking. Arguably, it has the deepest transformational impact on any industry. Most important, it has provided customers with the information they need at a time, place, format and device of their choice. This has been a true empowerment.

Consulting companies and IT majors, as would be expected, are deeply invested in the digital transformation initiatives at banks. They have proffered channel integration/optimization as the central pillar in enabling this transformation. Banks’ response, however, have been mixed.

Channel integration/optimization, in short, seeks to fine tune different digital channel touch points so that the customer has a unified experience at the bank. Consequently, this synchronization or optimization can help banks elevate customer experience by calibrating the delivery of best in class products and services.

But the problem with this approach is that every organization has to level up and offer top customer experience. That is the minimum and ‘must have’ expectation today. Anything less will jeopardize business and could potentially result in loss of customers. The result is that all major banks have geared up and offer par or exceed expectations in customer experience.

Further, channel integration/optimization is, by no stretch of imagination, a disruptive innovation by itself. It is an evolving standard or touchstone that every organization must meet to remain competitive, albeit an attractive revenue generating opportunity via the integration business. By definition it is glued to the physical architecture and seeks to achieve operating efficiency or synchronization as its end result. To that extent it may be handicapped and only obliquely impact profits.

There is, for instance, no room to incorporate analytical insights and the consequent learning as the motive force in reinvigorating banks business drivers. Hence it is no surprise that this channel optimization has not greatly enthused banks.

A recent study by McKinsey, in this context, is an eye opener. The study identified areas of bank digitization that made financial sense and those that did not. It concluded that while back office digitization / automation – like document digitization (e.g. mortgage financing) , automation of credit decision and sales side analytics - impacted bottom line, investments in multi­channel integration do not appear to have been as effective. Interestingly, huge investments in select areas of digitization and analytics distinguished highly profitable banks.