Banking

11 Problems With Banks Today That Demand Immediate Attention

While banking has come a long way since the advent of coins and financial systems , there are still critical problems with banks today. This blog features common banking challenges that are going to be a major concern for banks in 2019.

 Digital transformation of any industry could be a challenging task. When it comes to banking, things get even more crucial due to its heavy impact on common people and security concerns. So, while there is a promising future of technology in banking , there are still critical problems with banks today. Today we are going to look into such common banking challenges that are going to be a major concern for banks in 2019.

 

11 Banking Challenges That Banks Face in 2019

 

1. Rising competition from Fin-Tech & Non-Traditional Players

2. Lack of Personalization

3. Going Local vs Standardizing Operations

4. Lack of Security Measures That Don't Interfere with Customer Experience

5. Absence of Instant Check-Out Experiences

6. Limited Use of Point-of-Sale Systems

7. Slow Adaptation of Technologies

8. Information Overload for Consumers

9. Customer Retention

10. Adopting Single Customer View

11. Creating a Customer Experience Culture


1. Rising Competition from Fin-tech & Non-Traditional Players


Thanks to the rapid, digital innovation in the banking sector and a move towards a less-cash economy, the customer expectations from banking services have changed as well. These evolving expectations have not only allowed FinTech startups to challenge the banks but also made established players familiar with customer behavior to enter the market. Banks need to evolve to meet this new competition and transition its customer base from satisfied to loyal, especially at the time when there is a FinTech startup for almost any bank service

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Source: Medici

For example, Amazon’s entry into grocery got a lot of attention, but it is their entry into financial products is going to have a much more long-term impact. In India, they have already introduced customer credit by providing EMI option through Amazon Pay to their most bankable customers. In the US, their customers can deposit cash directly into their Amazon accounts through Amazon Cash service, by passing the banks. Over the last year they have lent over US$1 billion to small businesses that sell through amazon.com.

alibaba-mybank-problems-faced-by-banking-sector

Source: TechInAsia

Amazon isn’t the only one shaking up the BFSI (Banking, financial services and insurance) sector. Alibaba already has the world’s largest money-market fund and has issued loans worth $96billion over the last five years.

In terms of market capitalization, Ant Financial is as large as the ninth largest bank in the US. MYbank, an online bank owned by Alibaba, approves loan instantaneously based on the financial history of the customer on Alibaba. Rakuten, Japan’s e-commerce giant, has grown to become the country’s largest Internet bank and third-largest credit card company by transaction value.

The message is clear. The challenges in banking are not just from FinTech startups, but also from established players who understand the customer behavior much better than the banks do. The trouble is that while the customers are satisfied with what their bank offers, they are not loyal to the banks. (Here are 5 reasons why customers leave your business and tips to retain them). The better customer experience offered by these other brands has successfully captured customer value away from the banks.

2. Lack of Personalization


What fin-tech startups and established players like above have done is offer customized experiences to people. This is where many banks still lack due to traditional operating models.

Banks need to address each of their customers as an individual and build a relationship with them. It is no more sufficient to provide a generic solution. All customer engagements and interactions need to be personalized, and this goes beyond just addressing them with their name when sending email/SMSes.

Banks need to know what the customers' preferred channel of interaction is, and always contact them through this channel. Equally important is to maintain consistency in customer engagement and experience across the various channels involved. This is a challenge today as banks have developed to work in silos.

Customers today access the bank through every increasing touchpoints. They take anywhere, anytime, any device access to banking services for granted. Banks, under pressure to not being left behind by the wave of digital proliferation end up rushing out new apps. This has a side-effect of creating even more channel silos.

Banks today need to take a leaf out of other industries that value customer experience. The time when the focus of the bank was on transaction execution is now gone. Banks need to realize that it is but a small part of the customer experience. They need to, instead, focus on the complete customer journey and adopt an omni-channel strategy that the retailers have successfully implemented for their services.

3. Going Local vs Standardizing Operations

banking-challenge-Hyperlocal-targeting

Source: Brillmedia

Another banking challenge that is a result of above problem of lack of a personalized experience is to strike a balance between their operation model and tech platform for customization.

Increasingly, banks need to provide a personalized customer experience that reflects their values with every interaction. A strong sense of place reflected the personality of the neighborhood is one way to make the services more intimate.

But as banks localize their services, it has an impact on standardization and operational efficiencies that make them profitable in the first place. This dichotomy between localization and standardization is the biggest challenge of commercial banks in 2019.

4. Lack of Security Measures That Don't Interfere with Customer Experience

 

problems-with-banks-today-security-customer-experience

Source: Heimdal Security

Over the last decade, the frequency of data breaches has continuously increased, and the risk of cyber attacks has become more and more apparent. It is not more a question of if, but when an attack would take place. The persistent losses that BFSI institutes and customers have faced has made risk-management on all customer-facing channels a top priority.

In an effort to manage risks, multi-layer authentication strategies have been implemented in banking technologies. The trouble is these strategies have not only been resource intensive but also have deteriorated customer experience. There increasingly is a demand to unify authentication across channels. It is also important that authentication techniques applied are rational and commensurate with the level of risk involved in a given transaction.

5. Absence of Instant Checkout Experiences


Mobile commerce has seen a huge jump in the last few years, but no one has been able to solve the problem of m-commerce. The reason is quite simple: it is very difficult to be a platform where customers can do everything they want. And banks have been especially lethargic in developing tailored solutions for mobile devices.

Banks have largely worked on the assumption that online banking/e-commerce will work seamlessly for m-commerce as well. This has proven to be untrue. There is a need to develop custom solutions for customers in line with their various expectations.

For example, when a customer is looking at an ad in a magazine and decides to make an impulse purchase on their mobile phone – is there a banking application that can help them achieve this? Or is there any API (Application programming interface) platform for banking that is being leveraged by third-party wallet providers? Or can the banks look into latest technology, such as augmented reality, that can change the way we buy?

As digital shopping has become more and more popular, so has been the number of shopping carts abandoned because of the cumbersome checkout process and lack of instant payment systems. Banks need to step up their game here and provide bank-branded instant payment methods. Customers would not only trust but, also find these instant checkout experiences easy to navigate.

Another instant payment service popular with customers today is of a digital wallet. Again, non-banking institutes have managed to corner the market here. Can banks somehow win the customers back with their own wallet services by upping their game with speedy online payment processing? Can banks tap into the UPI network to make instant digital payments work seamlessly for the customers? Banks already have a captive customer base, including credit and debit card holders, still, why have they been lagging behind third-party wallet providers?

6. Limited Use of Point-of-Sale Systems

 

challenges-facing-corporate-banking-mobile-point of sale

Source: Intuit Quickbooks

As India moves towards a less-cash economy, it has become imperative that POS payment systems get more and more mobile. Handheld POS payment systems are already in the market, but not all of them handle authentication well.

Banks also need to develop technological solutions that can work in conjecture with smartphones and tablets, rather than be a bulky device that needs to be carried around whenever someone wants to swipe a card.

The rise of digital wallets presents another opportunity of simplifying POS transactions. Players like PayTM have already cornered the market with simple QR code based instant payment systems. Banks need to either find a way to integrate their technology with these or provide their own instant payment solutions to work with digital wallets.

Further, banks need to find a way to go beyond traditional banking services and provide value-added services through their POS payment systems. Given the huge amount of data that the banks capture through their POS systems, they should also employ data processing to generate customer insights for the merchants.

Third party solutions that use big data stream processing and machine learning to provide actionable insights at the time of POS activation are already in the market. Given that the bank has a much larger dataset available, they could offer much better insights by identifying their audience.

Another important feature that banks need to add to POS systems is POS promotions for their cardholders. Such promotions are regularly run when a customer makes an online payment; it is time the banks provide similar offers when swiping at a POS.

7. Slow Adaptation to New Technologies


Banking, as an industry, has been traditionally slow to adapt to technology due to reasons like non-agile systems, mindset of leaders, regulatory concerns, etc.

However, if banks really want to attract modern consumer especially the millennial generation,  they need to quickly adapt and wow the customer with latest technology that is visible to them. Of course, banking technology should be used in a manner that adds value to the customer. This would create customer delight, and help shift your customers from being satisfied with being loyal.

The more loyal the customers, the higher their lifetime value will be to the bank. This, in turn will build shareholder value. The challenge here is investing in the right technology at the right time. The investments in cutting edge banking technology do not pay off immediately. Based on the banking technology being explored, the timeframe for a market-ready experience could be from a few years to a few decades.

Also See: 11 Banks That Have Successfully Adopted Augmented Reality

For example, it is clear the voice-based interactions through platforms like Alexa and Google are here to stay. Many users of these technologies talk to these virtual personal assistants and expect them to get things done at the bank. Banks today are exploring ways to provide a voice interface.

This raises completely new questions that the bank needs to answer: what does your bank sound like? Is it male or female or “robotic”? How will authentication take place when interacting through voice? What should the tonality be? How “hip” should the bank sound? Is the bank old or young? Answering these questions, and getting the right assistant may take a lot of trial and error. How can banks ensure that they get it right at the earliest?

8. Information Overload for Consumers

You may send plenty of offers and offer reward points to your consumers through direct mail, SMSes, emails, etc. However, what the modern consumer need is relevant and contextual information instead of spammy messages. 

Your cardholders may have access to a rich bouquet of offers, but they will only be able to use them if they are aware of them when they are in a position to benefit from them. We have discussed a couple of use-cases already: Hyperlocal offers and POS promotions.

Are there other ways this can be achieved? For example, what are the ways to make them aware of offers around them when they are at a new location? How do you ask permission to track their location and should you do this based on card swipes or using your mobile app? Banks need to explore solutions and answers to these questions to stay relevant and engaged with their customers. 

9. Customer retention


This is perhaps the biggest problem with banks today. As a result of failure to overcome above challenges and with the increase in third-party payment service providers and technological alternatives, people are quick to switch their bank if their needs are not being met. Banks need customers to stay with them and ensure that they maximize the customer lifetime value. 

10. Adopting Single customer view


For personalization and omni-channel strategy to work, banks will have to move away from being product focused and turning into customer-focused organizations.

One of the ways the banking and financial system reflects this renewed focus is through developing a single customer view (SCV). An SCV is a consistent 360-degree representation of all the information that the bank has about its customers.

Let us consider a business reality that happens frequently these days. A bank has a customer who has already bought Product A and Product B. This customer is interacting with the bank online to purchase Product C and is also communicating with the call center for some service related to Product B. Thanks to SCV, the bank would be able to identify that the customer has a single identity – and not treat each interaction as an independent customer interaction.

While implementing SCV should be a priority, banks are often unwilling to make the transition as the current systems are extremely complex. Each department has developed its own system by adding ad-hoc functionality for their own needs. Now, it is challenging to make these systems talk to each other. Further, SCV also requires a way of identifying relationships between customer. This is important as some products are targeted to the household or family while others are targeted to individuals.

11. Creating a customer experience culture


This is the biggest challenge that the banks face today – creating a new culture for the new and dynamically shifting marketplace.  Traditionally, banks have focused on selling their products and executing transactions. The problems faced by banking sector that we have seen so far indicates that it is time that banks create a customer experience culture instead.

What does this mean?

The banks will have to shift their viewpoint from inside-out to outside-in. Meaning instead of finding ways they can sell their products to the customer, they need to see the world through the customer’s eyes and provide solutions to the problems they face. This is easier said than done. While the change will have to be driven from the leadership, the execution can only be done by empowered employees who buy into the leadership’s vision. 

Summing it Up

The banking challenges discussed above have become more relevant in 2019 where technology is advancing by leaps and bounds. Today's disruptive technology allows banks to reach a wide audience with great ease. However, they need to deal with these issues and problems to not only reach but also engage and build relationships with their customers. 

Although there might be many technological challenges in banking at present, this does not mean the industry is devoid of any vision for the future. Check out our blog on future of banking to know what could be possible and how technology can disrupt the banking and financial sector!


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