Why Traditional Retail Banks Aren’t Going Digital Fast Enough

By Mike Wright, CEO, Striata

The traditional way of servicing and engaging banking customers is rapidly being replaced by digital alternatives. Service channels have moved from the branch and ATM network to online banking platforms and mobile apps. The relationship building and cross selling traditionally done face-to-face by a consultant with a printed brochure is increasingly migrating to social media and digital messaging.

The benefits of this transformation to both banks and consumers are clear: the bank saves costs, improves efficiency and builds up better business intelligence; customers access services and information faster, using the channels they prefer, whenever they choose.

Considering the obvious benefits and improved economics, why are traditional banks not digitising faster?

The luxury of ‘digital first’

According to McKinsey in a 2014 report, traditional retail banks across Europe had digitised only 20 to 40 percent of their processes. More recent research from EY shows that as recently as 2016, only 26% of Swiss banks surveyed viewed digitisation as something that ‘will fundamentally revolutionise the financial services industry.

Admittedly, traditional banks have a lot of legacy to deal with – in systems, processes and even the people in their employ. Digital transformation means creating an API layer that integrates  with old mainframe systems; change management to overhaul manual, inefficient operations, not to mention re-training of staff at every level. For a large, established bank with thousands of branches and employees, this change comes gradually and at great cost.

Traditional banks also have ‘executive legacy’ to deal with – many executives still view digital transformation as a standalone initiative alongside many others, instead of a total transformation of the entire organisation.

On the flip side, are the newer players like Atom Bank (now the most recommended UK bank) and Starling Bank, that have the advantage of taking a ‘digital first’ approach. A ‘fully digital’ bank is able to build core systems that enable access and easy integration. Their processes have been designed from the bottom up to leverage technology and digital channels. They recruit digital natives: people who are comfortable and competent in the digital world.

Perhaps their greatest competitive advantage is the ability to create the best possible customer experience: from signup, to service and marketing. I recently had reason to open a new bank account with Starling Bank. The process was digital from start to finish. I completed the entire account opening process within 5 mins sitting outside a pub with a beer in hand. Compared to how I interact with my incumbent (large, traditional) bank, the experience was impressive: fast, efficient and well communicated.

Can traditional banks catch up?

A large part of what banks need to digitise is how they deal with customers at every point of interaction. To move into the digital era, banks must make the break from patching up legacy systems to adopting technologies that enable digitisation of their business processes and customer engagement.

Today’s consumers require a much higher level of engagement with their own data. In the same article, McKinsey suggests that more than two-thirds of banking customers in Europe are likely to be “self-directed” and highly adapted to the online world within the next 5 years, which is two years from now.

By leveraging the data they have, a bank can provide an interactive, engaging and useful experience that not only encourages a conversation with the customer, but also enables them to largely service themselves.

By Mike Wright, CEO, Striata

The traditional way of servicing and engaging banking customers is rapidly being replaced by digital alternatives. Service channels have moved from the branch and ATM network to online banking platforms and mobile apps. The relationship building and cross selling traditionally done face-to-face by a consultant with a printed brochure is increasingly migrating to social media and digital messaging.

The benefits of this transformation to both banks and consumers are clear: the bank saves costs, improves efficiency and builds up better business intelligence; customers access services and information faster, using the channels they prefer, whenever they choose.

Considering the obvious benefits and improved economics, why are traditional banks not digitising faster?

The luxury of ‘digital first’

According to McKinsey in a 2014 report, traditional retail banks across Europe had digitised only 20 to 40 percent of their processes. More recent research from EY shows that as recently as 2016, only 26% of Swiss banks surveyed viewed digitisation as something that ‘will fundamentally revolutionise the financial services industry.

Admittedly, traditional banks have a lot of legacy to deal with – in systems, processes and even the people in their employ. Digital transformation means creating an API layer that integrates  with old mainframe systems; change management to overhaul manual, inefficient operations, not to mention re-training of staff at every level. For a large, established bank with thousands of branches and employees, this change comes gradually and at great cost.

Traditional banks also have ‘executive legacy’ to deal with – many executives still view digital transformation as a standalone initiative alongside many others, instead of a total transformation of the entire organisation.

On the flip side, are the newer players like Atom Bank (now the most recommended UK bank) and Starling Bank, that have the advantage of taking a ‘digital first’ approach. A ‘fully digital’ bank is able to build core systems that enable access and easy integration. Their processes have been designed from the bottom up to leverage technology and digital channels. They recruit digital natives: people who are comfortable and competent in the digital world.

Perhaps their greatest competitive advantage is the ability to create the best possible customer experience: from signup, to service and marketing. I recently had reason to open a new bank account with Starling Bank. The process was digital from start to finish. I completed the entire account opening process within 5 mins sitting outside a pub with a beer in hand. Compared to how I interact with my incumbent (large, traditional) bank, the experience was impressive: fast, efficient and well communicated.

Can traditional banks catch up?

A large part of what banks need to digitise is how they deal with customers at every point of interaction. To move into the digital era, banks must make the break from patching up legacy systems to adopting technologies that enable digitisation of their business processes and customer engagement.

Today’s consumers require a much higher level of engagement with their own data. In the same article, McKinsey suggests that more than two-thirds of banking customers in Europe are likely to be “self-directed” and highly adapted to the online world within the next 5 years, which is two years from now.

By leveraging the data they have, a bank can provide an interactive, engaging and useful experience that not only encourages a conversation with the customer, but also enables them to largely service themselves.