Why a Band-Aid Approach to Digital Won’t Save Banks

By Sonny Singh

“We’ll leave the lights on for you” has been Motel 6’s tagline for decades, but the same can be said for the banking industry. Ever since the global financial crisis, banks’ IT budgets have been dominantly dedicated to compliance with regulation, security and keeping the day-to-day business up and running.

These requirements are table stakes for any bank to remain operational, but unfortunately they do not leave much room for banks to significantly invest in innovation initiatives that could catapult banks ahead of their competition.

Yet banks cannot afford to be complacent. Today banks face competitive pressure on all fronts—from fintech firms and online-only banks to tech giants like Google, Amazon, Apple and Alibaba’s Ant Financial, which are extending their customer relationships into financial services. Ant Financial, for example, which offers credit services, insurance products, micro-loans, investment products and credit scoring, shows how disrupters can win over customers with an end-to-end, seamless digital experience. In fact, Ant’s ubiquity among Chinese consumers has made it the world’s most valuable fintech company with a valuation estimated at approximately $150 billion.

While traditional banks remain highly trusted by consumers, 30 percent of consumers said they have not tried a fintech option or challenger bank, but are open to trying them, suggesting banks’ core businesses are more vulnerable than ever, according to Oracle’s New Digital Demand in Retail Banking report. To remain competitive and keep customers, banks must adopt a startup, digital mentality and invest in technology that improves the customer experience.

While change is necessary, there is a misconception that banks must completely gut their systems in order to modernize their offerings. Rather, banks that take a focused, step-by-step approach to digital transformation, can both modernize and simplify their capabilities, allowing them to satisfy their customers, stay competitive, and accommodate regulatory and budget requirements.

Four changes banks should prioritize to modernize

Adopting a progressive approach to digitization allows banks to systematically replace products and components over time, reducing overall IT complexity, mitigating technology obsolescence risks and integration costs. By prioritizing the following key service areas, banks can better meet customer expectations in the digital era, and strike a balance of innovation and simplification:

  • Achieve true digital originations. Originations and customer on-boarding are the first customer touch points, presenting banks with an opportunity to demonstrate an understanding of the customer and cross-sell products and services. Traditional originations platforms often silo processes like checking accounts, mortgage loans applications, credit cards and student loans, preventing banks from understanding what the customer has purchased across the enterprise. By modernizing the originations platform so any type of product across the channel—from prospecting through fulfillment—originates on one common platform, banks can better account for the entire customer relationship and adjust their service offerings and the customer experience accordingly.

    For example, Cleveland-based KeyBank was able to consolidate dozens of separate computer systems—which tracked customer use of checking, savings, loan, investment and other functions—into one platform that houses a suite of applications. This created a more seamless and convenient customer experience, where customers can review their transaction histories, look at their balances, pay bills and transfer funds in one spot. KeyBank also has a more holistic view of the customer, enabling it to better serve individual customers’ unique financial needs.

  • Credit decisioning. Real-time exposure management is critical to maintaining a bank’s overall health and profitability. Simplifying a bank’s collateral management and enterprise limits into a single, real-time platform allows banks to make more informed credit decisions. Bankers can limit utilization and reduce business risks, while also digitally enabling credit appraisal processes to ensure faster credit proposals. For example, data consolidation has allowed KeyBank to study the profitability of loans and their other bank offerings. This allows it to compare the total income versus credit exposure of each loan and adjust its strategy as needed.
  • Price on relationship and context. Today, specialized tools make it possible for banks to price a particular product for a target customer segment, helping them stay competitive and win desired business. By using integrated customer data more efficiently, banks can define interest and fees based on customer relationships with the bank. This not only enables banks to create value for existing customers and drive ‘entanglement’ through cross-selling, it also simplifies product administration.
  • Borrower-centric collections—amplifying trust. Another key component to financial institutions’ overall health is their ability to identify, track and monitor delinquent accounts accurately. By modernizing their collections capabilities, banks are able to have real-time account updates and keep an eye on operational performance. This enables line managers to effectively manage defaults within the bank. Additionally, banks can employ risk-based segmentation capabilities to help determine the probability of default, allowing them to get ahead of the issue. From a customer standpoint, digital notification systems allow banks to send out a reminder email or text to clients who miss a loan payment.

Measuring success

The customer must be at the heart of a bank’s modernization efforts. That means keeping up with customer expectations around convenience, speed and user-experience. With that in mind, here are three metrics banks can use to measure their modernization efforts:

  • First time right. This metric assesses how well banks ensure the information they gather from the customer the first time is correct. For example, how accurate is the information collected when a customer first opens a bank account? Can this information be used to inform future service offerings, such as approving a credit card application?
  • Time to yes. This looks at how quickly banks are able to answer customer requests. For example, if a customer applies for a loan, how long does it take for the bank to approve or decline? Historically, it has taken traditional banks weeks to answer loans applications. However, due to industry disrupters, banks need to bring this response time down to mere minutes.
  • Time to fund. This final metric looks at how long it takes banks to provide funds to the customer in response to a loan application, deposit, credit increase, etc. With customers, especially younger customers who expect speedy service, banks must show their ability to act efficiently.

As new competitors emerge, banks must be able to innovate more quickly and respond to evolving customer expectations. Banks that adopt a cloud-ready solution and a progressive approach to transformation, will be able to make meaningful, customer-centric improvements to their products and services. This enables banks to deliver better customer outcomes, keep competitors at bay—and “leave the lights on,” too.

Sonny Singh is SVP and general manager of Oracle’s Financial Services Global Business Unit.