August 28, 2018

Online banking is not digital banking. Before the internet, banks had a clear route to the customer as you moved the customers through a linear journey. You generated interest via awareness, created leads, followed up with prospects and closed sales, and finally used that data to start building a customer database. You would then use that database for cross selling and upselling. For banks, the primary channel was retail and they used marketing to move the customer past each stage of the sales funnel.

The Internet came and blew this existing paradigm away and shifted the power from sellers to buyers. Customers were now in charge of their journey, with the ability to compare products and research them instantly, and the ability to read reviews of friends and customers. This killed the linear funnel. Customer journeys became unpredictable and complex. They took short cuts, detours, U turns, and dives.

Banks with legacy software capabilities originally designed for physical bank branches responded by putting core services online. Being product centric, they treated the internet as yet another channel to reach the customer with their products and services. In fact, in many banks, internet banking was lumped with ADC’s or Alternate Delivery Channels that also included ATM’s.

How can you become a digital bank?

Digital players meanwhile understood that Millennials had created a digital twin in their mobile phones and laptops that lived online. These players made customer lives easier by understanding their journeys and those “moments of truth” where they could reach them in a seamless manner and hook them into products. They thought customer first, and built everything including product features and processes based on serving the customer quickly and with a fantastic user experience. This meant end-to-end mobile financial services or direct banking unencumbered with retail bank legacy technologies, processes, culture and product centered mindset. Banking became convenient, simple and focused. As a result, digital challengers started notching notable victories in delighting customers and creating shareholder value.

But does it matter?

Banks have been around for centuries. Surely, they will survive digital disruption by doing enough in the form of just online banking. In fact, the touted Armageddon of Fintechs that could be stealing the banks’ lunch seems to not have arrived yet.

This is dangerous thinking. The longer traditional banks do not move past online banking to truly digital, the more attractive the digital first challengers become. Hype is a normal part of disruption. We have gone past that stage but this does not mean banks are safe. It simply means that conditions are being created for a winner takes all world and the real battle has now begun. Retail banks who treat digital as just another channel will lose out to anyone who’s priority is the customer journey and who treats digital as a competitive advantage. It could be another bank, a Fintech, a platform outside financial services industry, or banks and Fintech working together; but whoever offers the most services that customers need from a bank and is able to scale with minimum customer acquisition costs, is bound to win.

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