Daragh O’Byrne, Global Head, Marketing and Alliances, Nucleus Software, looks at how banks can secure a new steam of digital revenue.
Taking advantage of rapidly advancing technology and growing demands from consumers for digital interactions, a number of disruptors have carved out niches in financial services. Just like other industries disrupted by new technology, many leading banks were initially quite indifferent to the challenge. However, this has given way to recognition of the need to change. Digital has become a fundamental theme for almost every transformation project.
With the tremendous cost advantages that the new technologies bring, it is little wonder that so much focus is being placed on efficiency. But is that what ‘going digital’ means? Is it about being available on the web, mobile and across social media? Is it about being paperless and having automated processes? Yes, it definitely includes these things but it is not limited to just these things. It can be very easy to say ‘it all starts with our customers’ and that the reasons for going digital are therefore driven by customer expectations. But there is more to it than that. Clearly, it helps reduces costs and may make it more appealing to younger customers. If competitors are all going digital and if it the regulators are pushing digital then the pressure builds.
While all these are strong reasons for adopting digital, it is also essential to evaluate it as an additional source of sustained revenue. In fact, it should generate a new stream of digital revenue, and this is where deeper thinking is required – how can banks and other financial services companies profit from digitizing lending?
1. Enhanced capacity
Customers today expect loan decisions in minutes not days. And while “trust” and quality of service are important when making a choice, speed and convenience are increasingly crucial. When you are able to process loan applications quickly without compromising on the quality of your credit portfolio, you create more capacity to process more loans without adding more cost. Not only is the customer happy with faster service, while your loan portfolio grows but you also reduce the unit cost of processing a loan. And the indirect benefit of turning customers into “brand advocates” cannot be overstated in a world where social media gives everyone a platform to share their experiences globally.
2. Ubiquitous availability
If you can originate and service loans without requiring your customers to visit the branch, you can grow your business anywhere, even in places where you don’t have any physical branches. This is perhaps the easiest and fastest way to scale up and use the additional capacity that was created with the speedy processing. While the debate on “mobile first” and “mobile only” hasn’t reached a conclusive end, it does underline the fact that mobile needs to be incorporated across the loan lifecycle in a comprehensive manner. In the future, it is possible, perhaps likely, that there will be no direct interaction between customers and lenders as their requests for loans, will be handled by digital assistants and bots – operating completely autonomously. Digital is a starting point to ensure your readiness for that future.
3. Market leading
With fast changing customer demands, dynamic economic conditions and evolving regulatory landscape, there is a continual need to roll out new products quickly and easily, perhaps anticipating the market need in certain cases. The first mover advantage in a highly competitive market can be tremendously valuable and market leaders need to be able to conceptualize, design and launch innovative products extremely quickly. A digital setup empowers you to do that effectively. Even if an organisation adopts a fast follower strategy, it still needs to be able to keep up with the market leaders, so as they become agiler so too must everyone else.
The first mover advantage in a highly competitive market can be tremendously valuable
4. Smarter sales
It has been reported that it costs 5 times more to attract a new customer than to keep an existing one, so it stands to reason that selling more to existing customers could be much more profitable than selling to new customers. However, targeting customers with the right offer at the right time is tremendously challenging. The digital footprints of customers are used by companies to offer targeted sales, but in reality, only those offers, which are extremely relevant and personalized, are able to cut through the noise to be appreciated by the customers. A digital infrastructure powered by insights from analytics can help you identify who to target, with what product and when they are most likely to react. Also, it lets you know which channel is best suited to approach them with pre-approved offers for a better response.
5. Premium positioning
Seamless, fast and unique digital experience, which focuses on “customer first” not only drives customer loyalty but also helps you differentiate from the competition. While this may not apply to a high price sensitive market, studies indicate that many customers are willing to pay a premium for a faster, better and personalized experience.
6. Higher profits
Comprehensive credit-scoring which incorporates inputs from traditional, as well as non-traditional data sources along with analytical insights, can help provide better visibility into the credit profiles of loan applicants. By making better credit decisions faster, you improve the quality of your credit portfolio, which in turn reduces the level of non-performing loans (NPLs) translating into higher returns. An end-to-end digitized setup eliminates manual intervention, reduces errors, standardizes decision making (not relying on individual, case-by-case judgment) and identifies pre-delinquent cases early (which can help prevent them becoming delinquent).
Virtually all companies are trying to go digital as it offers numerous benefits including enhanced efficiency, reduced costs, improved customer satisfaction, increased competitiveness and improved agility. However, while each of these offers tremendous value, organisations need to consider the wider context and the long-term strategy.
Digital needs to be part of a wider agenda to reshape the business for ensuring that it continues to be relevant in the future. As banks are ultimately in the business of growing revenues while increasing profits, they need to outline a digital transformation strategy that aligns with the long-term aims. This will increase the focus on the expected outcomes while driving digitization projects and also help align the relevant benefits for all the stakeholders.