How Banks can approach Digital Transformation?

The decision by Government of India to demonetize Rs. 500 and Rs. 1000 currency notes, that constitute a whopping 86% of the cash flow, is a disruptive move in a mostly cash-based Indian economy. Thankfully, the technology to fill the void created by cashless economy not just exists, but thrives in the Indian ecosystem. Indeed, India is now the second largest smartphone market with a solid mobile-device penetration too.  

Banks should use this opportunity to aggressively embrace digital transformation of its systems and enable the nation to move towards digital transactions.  But this disruptive development must be addressed by disruptive innovation and accelerated transformation. A phased and incremental approach is ill-suited to cope up with a change as enormous as this, and requires rapid, coordinated efforts on a war-footing.

Let us make an attempt to situate banks among the various stages of digital transformation journey:

• Bespoke Stage

Given the popularity of digital experience among customers, some aspects of the customer-facing activities are digitized. For example, most banks have adopted a paperless origination process for customers and internet-enabled payments are commonplace. However, many aspects of the back-end operations are still not digitized to the extent needed. Each department is given a free rein to develop digital initiatives within the preset framework.

• Integration Stage

By this stage, there are a considerable number of digital initiatives by various departments and it becomes tedious and cost-heavy to cater to each of them individually. Therefore, a more coordinated approach is initiated for collective bargaining edge. The internal consolidation brings cost-optimization and systemization of various processes. The simplification of the procedural formalities and technical processes offers value-addition to customer.

• Synergy Stage:

At this point, digitization has been infused into the banking systems to such an extent that it demands for a centralized planning. Digital becomes a rightful heavyweight of its own accord, and necessitates driving the digital vision across all levels of the organization. Therefore, a central body that coordinates and regulates the several integrated units becomes necessary. This central body can be tasked with realigning and harmonizing the various units to create synergic value for the entire organization.

• Full-fledged Digital Enterprise

This is the end-goal of all digital efforts, where there will be no effort that is unaligned to digital vision. This calls for rapid transformation of the entire range of processes, besides digitizing the legacy paperwork in requisite format. While there some pure-digital financial service providers like digital wallets, the fact remains that most companies have used digital as only as a technology-enabled necessity, not a strategy-driven vision. The digital must permeate the systems of banks, which must be prepared to shoulder the full breadth of responsibilities that is expected of traditional banks while simultaneously offering niche services that new-age customers have got accustomed to.

All banks would be in some stage of their digital journey as listed above. However, keeping in mind the skyrocketing demand for digital banking experiences, banks do not have the luxury of making incremental progress towards digital transformation. They need to be agile in implementation and take a quantum leap.

Even as the banks embrace digital initiatives, there needs to be a holistic marketing strategy to attract customers and retain them. Often, banks are able to fortify their digital resilience but falter in positioning their services to yield maximum impact. This aspect should not be overlooked, for as important as digital capabilities are, the benefits and advantages of using a bank’s digital service should be properly communicated. There needs to be a paradigm shift in communication strategy, with emphasis on differentiated services.

Below-mentioned initiatives need to be considered by banks to foray into digital.

• Develop their Digital Brand

Many banks are under the false impression that the bank’s brand is sufficient to navigate customer loyalty to their digital services too. While the bank’s image is definitely carried on by its digital extension, this is clearly inadequate because of the inertia inherent while adopting new technology and prevailing reservations regarding the security. Hence, the digital strategy must encompass ways to promote the unique and distinguished value of their digital services. Traditional banks are under fire from pure-players, so brand equity is their primary armor and arsenal to compete with them.

• Enrich the Digital Experience

Rather than being a reluctant adapter, banks must be a proactive adopter of digital technologies and infuse them in their systems. Remember, in the digital world, the rise is rapid, the fall drastic. The lifespan of many Forbes 500 companies is fast reducing, and so is their tenure. Banks must invest in embracing technologies and put them to rapid use, to create a distinct first-mover advantage. The cutting-edge use of Internet-of-things (IoT) might be the next frontier of financial technologies.

• Expand Digital Portfolio

Apart from digitizing the traditional banking facilities, there must be a concerted effort to develop new capabilities and services in wake of new disruptions. For example, the demonetization compelled banks to adopt Unified Payment Interface (UPI) platform, and surpassing expectations it has quickly become a widely used payment provision. It is inter-operable across banks, and enables payments without sharing the payee and payer bank account details. Also, provisions for digital wallet can be incorporated, enabling faster transactions among those in business.

Finances touch the daily life of people, and therefore, digital capabilities must be accorded the highest priority. Indeed, in wake of demonetization the demand for Point of Sale (PoS) machines has spiraled up. However, there are many small businesses that cannot afford a PoS machine instantly. That’s not necessary either. Thankfully, we live in an era of widespread smartphone use, and this is the opportune time to collectively jump the digital bandwagon. Given that most customers use smartphones, a more integrated, secure mobile-enabled payment solution will boost the digital transformation of the smaller businesses as well.

It was reported that even many bank employees themselves did not avail their digital services because cash-based economy was what Indians were used to for a very long time. Indeed, due to the unique conditions in African continent, Kenya leads the world in mobile money. Thanks to the radical improvements in digital capabilities and security at a rapid pace, we may enter the phase of minimum cash economy or, who knows, even cashless economy.