In 1989, the Los Angeles Times reported that four of the five biggest banks in California would begin opening their branches on Saturdays, while also extending their weekday hours to 6 PM. Until that point (and for much of the banking sector’s history), typical “banker’s hours” were from 10 AM to 3 PM, so this was big news for customers who wanted to do something elaborate, like visit a branch after work. The strategy would cost these banks “millions,” but it was seen as an investment in the future.
Nowadays you can bank on your phone from your kitchen table at 4 AM on Christmas morning. Furthermore, through collaboration and partnerships, it is possible to book tickets, insure your travel, and book a hotel seamlessly for your Christmas travel.
When it comes to innovation, it’s no secret that traditional banks have often been a day late and a dollar short, far more reactionary than progressive. But after more than a century of making the rules, time (and rapid digital acceleration) has caught up to these venerable institutions, creating an endemic threat to their future relevance. As they say, “People need banking, not banks”.
A ONCE-IN-A-GENERATION OPPORTUNITY
In some ways, the path ahead for traditional banks could not be clearer—customers haven’t been shy about their desire for more flexibility, increased personalization, and better control over their finances. The big problem facing banks is loyalty, which decreases with each U.S. generation. According to recent figures, about 65% of Baby Boomers use one banking provider – but for Gen Z (those born between 1996-2014), it’s only 33%. The same generation is also most likely to switch providers at any moment, meaning they are much more interested in features, benefits, and services than allegiance.
This is all great news for digital banks and fintechs, who are capitalizing on what McKinsey refers to as a “once-in-a-generation technology revolution,” to steal market share and create immense new value.
“Our research shows that revenues in the fintech industry are expected to grow almost three times faster than those in the traditional banking sector between 2022 and 2028,” McKinsey said. “Digital adoption is no longer a question, but a reality: around 73% of the world’s interactions with banks now take place through digital channels.”
Traditional banks have gotten the message, and have spent the last decade rapidly rethinking everything from branch design to customer experiences and back-office processes. Despite the headwinds, banks have made steady progress, leaning into artificial intelligence (AI), machine learning (ML), and automation to increase their agility and customer-centricity. They’re using data more efficiently, getting creative with low-code/no-code (LCNC) application development, and breaking down silos within their departments to streamline operations.
Here are three other ways that traditional banks are being retrofitted for our digital future:
1. New Customer Onboarding
First impressions matter with financial institutions, especially with so much competition. Banks used to rely on how difficult it was to change providers, “banking” on the fact that customers would rather not go through the hassle. Those days are gone. Now you must show value from day one, and always. By incorporating cutting-edge technologies into the initial customer onboarding experience, banks are setting a digital tone right from the start, using AI-driven processes and user-friendly interfaces to ensure a smooth introduction to the company.
Interactive modules, virtual simulations, and multimedia presentations can offer a dynamic and engaging learning experience. Seamless technology to build accessible support channels allows customers to seek help when and where they need it. Chatbots, online tutorials, and interactive guides can provide immediate assistance and create an intuitive onboarding journey. In some cases, customer journey data is already available in other products or divisions. When not, it is possible to collaborate with government agencies to pull data based on a national identity number. ABA Bank Marketing points out that, done well, “…digital onboarding can deliver substantial benefits. Whereas retail client acquisition in a physical, siloed world costs an average of $280, shifting to digital onboarding reduces the cost to $120, and in subsequent years for additional clients to $19.”
2. Workflow Automation
It took traditional banks some time, but there is now a general appreciation that not every customer interaction needs an employee’s touch. Automation is a tricky subject, usually conflated with fears of replacing workers, but it’s not an all-or-nothing scenario. By embracing automating processes that don’t require human intervention, bank employees are freed up to work on higher-level cognitive tasks, those nuanced decisions that humans still play a critical role in adjudicating. For example, automating loan origination simplifies a complex and time-consuming process, allowing for better risk assessment and overall profitability.
An ironic reality for traditional banks is that not all are flush with cash, and it’s often tough to compete with the salaries and benefits that fintech firms offer top tech talent, leading to a glut in resources capable of these digital upgrades. Rather than exhaust budgets hiring these workers, banks are instead turning to LCNC development platforms that enable teams to build applications with minimal coding requirements, thereby accelerating development and reducing costs. These platforms provide visual interfaces, pre-built templates, and drag-and-drop functionalities, allowing both technical and non-technical stakeholders to quickly create custom applications, streamline internal processes, and deliver innovative customer experiences.
The point to note is that, for some transactions, like bank balances, statement views and routine queries, customers prefer chatbots due to privacy and predictability of responses. Banks could and should automate these.
3. Cross-Functional Problem Solving
Highly regulated financial institutions are weighed down by decades of status quo thinking, a confining environment when dealing with tech-first companies who like to move fast and break things. Fintechs and digital banks are usually set up to run lean from the start, whereas traditional banks need to break down existing silos, upskill team capabilities, and encourage a new culture of collaboration.
A recent survey from WorkDay revealed that two-thirds of financial professionals surveyed felt that “AI and ML have already increased productivity and operational efficiencies by helping create financial sustainability, standardize process flows, and automate repetitive tasks.” For example, offering instant loans for a supermarket purchase or insurance during a travel booking are services that can be provided instantly by an AI engine, an impossible task done manually by bank staff. However, cross-selling of products and services remains an important revenue driver for legacy financial institutions.
INNOVATE, CONSOLIDATE, OR PERISH
Banks who continue to collaborate with and or acquire fintechs to create a better customer experience platform will find their customers are delighted with new AI/ML solutions, improved customer behavior predictions, and individually tailored deals.
Rather than try to compete with fintechs and digital banks on speed or GTM strategy, traditional banks are assessing their current digital capabilities, rethinking business models, investing in people and change management to fill any gaps, and getting more aggressive with strategic M&A to future-proof operations.