TIJSBERT CREEMERS: Heat on banks to reimagine customer experience amid digital revolution

Retail banking in SA is evolving rapidly, becoming increasingly competitive as neobanks and digital players disrupt the value chain with new technologies.

For banks to be loved in the future due to these changes, they must reimagine customer service by meeting and exceeding changing customer expectations.

This requires giving customers what they want when they want it. Serving customers in this way requires a clear understanding of the customer, strong digital interfaces, holistic solutions and modular products that can be adapted quickly to meet customers’ needs.  

Key to achieving this will be leveraging customer data to provide fully personalised offerings. Legacy retail banks will also need to invest in reorienting and retraining their workforces as they shift towards digital banking. This includes developing critical digital and analytical capabilities. 

A recent report by Discovery Bank in partnership with BCG, “The Future of Retail Banking”, said that the way most SA customers want to interact with their banks has changed. More than 80% of customers  expressed a preference for conducting their daily banking digitally, while about 60% say they would be comfortable with a completely digital full-spectrum banking offering.

But many banks are falling behind the technology curve and not fully ready for the transformation to digital banking. Some are encumbered with legacy IT infrastructures and processes. Most have brick-and-mortar branches with capabilities ill-fitted to the digital world. These incumbent banks must reinvent how they address customer needs and pain points.

Greater collaboration

Digital channels are now far more than avenues to reach and serve customers. Rather, they are transforming the way people interact with money and financial services. However, if incumbents fail to change the way they serve their customers’ needs, digital financial services may threaten the very existence of banks in their present form.

Despite the threat posed by these new players, we believe there is a space for incumbents and challengers — and like China, SA and other African markets are likely to see greater collaboration between banks and fintechs to offer new digital banking services. Incumbents can leverage data from a vast, stable customer base to understand and meet customer needs better. Challengers are agile and can develop tailored digital propositions for particular customer journeys.

Incumbent banks have begun to respond to the threat from challengers in many ways: some have begun by modernising IT systems, others have reassessed their operating processes and the way they serve customers. For example, First Rand, Nedbank, Standard Bank and Absa allow customers to obtain full home loan approval using their digital channels.

These incumbents will need to continue to redefine their approach and decide on a business model that best suits their customers’ expectations if they are to remain relevant. There are eight business models that offer the ability to seize the opportunities of digital banking: digitised full-service bank; open bank; ecosystem; product engine; direct bank; neobank; specialist provider; and marketplace.

Retail banking is not a one-size-fits-all proposition. For incumbents and challengers data holds the key to meeting customer needs, no matter the model banks decide on. SA’s banking industry is more advanced than other sectors in the use of data analytics, and this must now be scaled and expanded to include other solutions such as mitigating risk, identifying unusual spending behaviour, identifying “red flags” for loan applicants, and customer segmentation for marketing campaigns.

Personalised engagement

While incumbent banks may struggle to compete with tech companies on agility and core system design, they have access to a vast database of structured and unstructured data that can be leveraged to understand customers’ needs and address pain points better. For example, Standard Bank has been using data-led personalisation to increase cross-selling of unsecured personal loans and improve customer retention.

For digital players, personalised engagement with customer data underpins their plans to scale. Discovery Bank entered the market offering personalised lending and investment rates based on spending habits, for instance.

To compete, incumbent banks will have to create a new way of working to deliver personalised customer interactions, as well as shape their value propositions around solving problems for their customers. That means creating an ecosystem of services that span beyond banking — including property and vehicle services — and a broad spectrum of convenience and lifestyle product partners in entertainment and travel.

In increasingly competitive retail banking, incumbent banks need to find ways to regain their customers’ love. By reimagining what is possible and leveraging their vast stores of customer data to engage with their customers in a new, more personalised way, using high-quality digital channels and adopting customer-centric business and interaction models, incumbent banks can successfully transform for a digital future and retain their place in customers’ financial journeys.

• Creemers is MD and partner at Boston Consulting Group in Johannesburg.