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Navigating the new normal with Digital Transformation and Banking Innovation

Navigating the new normal with Digital Transformation and Banking Innovation 3

Navigating the new normal with Digital Transformation and Banking Innovation 4By Sanat Rao, CEO of Infosys Finacle

  • The pandemic has accelerated digital adoption at both organizational and industry levels. What is the state of digital transformation in banking since the pandemic? 

Once, the earth was believed to be the center of the solar system and the sun was supposedly going around it. After we corrected our paradigm, a great deal of progress was possible. Similarly, the banking industry has witnessed a paradigm shift over the last decade, evolving from a high physical-touchpoint sector to a digital-first industry.

Between 2000 and 2020, banking transactions went from being 50% in-branch to 90% digital. Today, they have started migrating to non-bank, third-party channels as open banking and embedded finance take hold on a staggering scale. For example, in India, in October 2021, payment transactions on the Unified Payments Interface exceeded $100 billion in a month for the first time with 60% of the transactions that happened via UPI being conducted by non-banks such as Google, Phonepe, and Paytm. This is a preview of what banking will look like globally in the near future.

That said, most banks are yet to arrive at a stage of digital maturity. This is corroborated by the findings of the Finacle & Efma annual research on ‘Innovation in Retail Banking’. In the 2020 study, only 7 percent of the 700 banking executives interviewed said that their organization has deployed digital transformation at scale and is reaping the desired results.

Staying relevant is the biggest concern of bank leaders today. Consequently, banks are in a state of continual transformation – an ongoing pursuit of ways to create, deliver, and capture value.

  • Your organization work with banks of various sizes and persona. What according to you are the key drivers that can scale digital transformation and consequently banking innovation in the coming years?

We have come out of the crisis mode of the pandemic and facing a new customer-centric banking paradigm that is open, transparent, real-time, intelligent, tailored, secure, seamless, and deeply integrated into customers’ lives. And embracing digital transformation and innovation at speed and scale is the secret sauce for growth, sustenance, and success.

This is further confirmed by every bank we have spoken to who are driving true digital transformation across segments, keeping the customers at the center of their organization’s mission. We believe that banks can scale their digital transformation in the coming years by focusing on six key themes:

  1. Maximizing digital customer engagements to drive growth
  2. Digitizing and automating ubiquitously to cut costs
  3. Innovating continuously, to create new value and to stay competitive
  4. Leveraging the power of new technologies like cloud, API and AI to unlock new possibilities
  5. Leveraging talented teams and purpose-driven culture to unlock true potential
  6. Recasting their business into new digital models
  • With new innovative technology-led business models coming into play, simply being in the banking business no longer guarantee revenues or sustained growth. How do you see banks driving business model innovation in the evolving market context? 

There’s no aspect of banking that is untouched by the new business models possible today. Globally, traditional banks have seen their competitive advantages, whether reach, product choice, expertise, or customer base, erode steadily over the years. To a great extent, this is because of new non-traditional entrants who have differentiated their propositions through innovation, systematically diminishing the competitive advantages – branch network, user base, deep pockets – of incumbents.

With the pandemic intensifying disruption, the gap between the digital leaders and laggards is widening rapidly. This poses serious problems for bank CEOs who are on the wrong side of the divide. For them, the need for digital business model innovation is here and now. And we are not talking about peripheral fixes, which are clearly not enough – but complete reinvention.

As the trusted partner to banks globally, we wanted to highlight the urgency of business model innovation and draw attention towards steps banks can take to succeed. So, over the last few months, we worked with 11:FS to produce a study on this contemporary topic. It highlights eight archetypes that are creating and delivering value to customers in new ways are gaining significant interest globally. These archetypes include – Digital-only Banking, Banking as a Service, Embedded Finance, Digital Financial Advisors, Finance Marketplaces, Financial Institutions led Non-finance Marketplaces, Banking Industry Utilities, and Banking Curators.

  • Finally, what’s Infosys Finacle recommendation on how banks can drive intimate customer engagement to navigate the new normal? 

In this mobile-first world, banks must place the customer at the center of the banking ecosystem and reimagine their products, processes, and services. The digital-age customer is spoilt for choices, demanding and impatient. According to a PWC study, one in three customers said they would not hesitate to move on from a brand that they love after just one bad experience. And further, with big-tech and fintech companies entering the banking space with innovative propositions and customer-centric experiences, traditional banks must rush to meet or exceed the same standards, else lose customers and revenues.

So, while the need for enhanced customer engagement is clearly the number one priority today, it takes a holistic approach to usher the change. Firstly, banking must be equally accessible on all the channels of discovery and value delivery, including mobile, internet, kiosk, voice banking, ATM and smartwatch. The next step is to embed financial services (payments, loans, insurance) within the lifestyle habits (social media, messaging apps, eCommerce sites, travel portals etc.).

Several pieces such as people, processes and technology must come together to craft a superior customer engagement. This involves rethinking business models, provisioning the right technology to facilitate digital engagements and omni-channel capabilities and finally personalization at scale. Used to personalized experiences from the likes of Amazon, Netflix and Google, consumers expect the same from their banks. The roadmap to a successful and intimate customer engagement must include leveraging big data to anticipate customer behavior and requirements and using these insights and other data, such as location and payment preferences, to push contextual, personalized offers at scale. The spirit of contextual engagement and personalized services must span across the entire lifecycle of the customer – across onboarding, converse, sales, and service.

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