The today banking industry is passing through a radical shift and facing many challenges in their banking system. This shift is driven by novel financial technologies, changing business models, mounting pressures due to regulations and compliance procedures and disruptive technologies applied in delivery channels. The emergence of new financial applications and non-bank startups have changed the level of competition among the financial institutions. This situation has forced the traditional market players to revise the way of doing their business. The rigorous regulatory and compliance procedures and norms have further aggravated this challenge.
The present availability of a wide range of novel delivery channels in the financial service sector has made customer retention and loyalty, a major concern among the banks and credit societies. The new trends of digital transformation with deceptive technology have forced a large number of the institution to embrace this new trend in order to survive and thrive in the present market place. For institutional who were so far accustomed to the traditional way of working models, the areas of new challenges can be categorized as under.
Increasing Competition – The new financial tools like fine tech may target the source of the most profitable areas of financial institutions. A report from Goldman sacks predicts that the new tools and startups like Fintech or shadow banks can divert annual revenue up to $4.7 trillion from the traditional financial sectors in coming years. These new entrants have forced many financial institutions to seek partnership or acquisition opportunity as a stop-gap measure. The main driving factor for this upcoming change is the strategy to provide a simplified and intuitive customer experience.
Changing Business Model – The east of compliance and regulatory management is just one of the many factors that have forced the institutions to change their business model. The other factors are the cost of capital, sustained low-interest rates, reduced working margins, decreasing return on equity and decrease in proprietary trading, which has put pressure on the existing source of profitability. Yet the stakeholder’s expectation did not change. This led to the creation of new competitive business and service offers, rationalizing the business process and seeking continuous improvement in operational efficiency to maintain profitability. Thus financial institutions have also structured and prepared themselves to face a new situation with agility.
New tools like Bots may increase customer engagement without incurring additional costs, thereby improving the resolution time and thereby the satisfaction level. Bots can also be used for sentiment analysis and gather information through dialogue while understanding the contest through the recognition of emotional cues. Worth this information, bots can quickly evaluate, escalate and route complex issues to human points for resolutions.
The rising cost of compliance and regulatory measures – It has come up as a major concern for the financial sector, the regulatory fees have increased dramatically as compared to the pressure on earnings and credit losses due to financial arise. Such challenges range from Basel’s risk-weighted capital requirement, FASB’s current expected credit loss and the allowance for loan and lease losses (ALLL). Maintaining such strict regulatory compliance places significant stress on disposable resources for profitable internal operations. This cost of compliance has increased without a proportional enhancement of risk-mitigating factors.
Technology is a critical component in creating a culture of compliance. It collects, mines the data, performs in-depth analysis and provides meaningful reports which are helpful for identifying and minimizing compliance risk. The technology can standardize processes, correct and consistent follow up which enables the organization to keep with new changes in regulatory policies.
Customer Retention – Customer expectations in financial sectors are centered on meaningful experience through simple and intestine interfaces on any device, anywhere and at any anytime. Though it is hand to gratify the customer’s experience, customer’s turnover and his loyalty can be easily measured as a tangible quantity. Customer loyalty can be attributed to the rich client relationship that begins with “Know your customer” and continues with an ongoing client-centric approach.
It is a proven fact that customer service drives loyalty by knowing the customer and engaging with them accordingly, the financial institutions can optimize interactions the result in increased customer satisfaction and wallet share and subsequent decrease in customer flight, studies have shown that majority of consumers prefer virtual assistance for time redressed of their issues.
Technology – According to 2017 Gartner survey, a greater portion of the business will come through digital channels and as such digital initiatives will generate more revenues and value. As a result, organizations will miss the critical business evolution without a solid and future technological foundation. The digital transformation will become imperative for survival in the industry.
Technologies like cloud computing, artificial intelligence, and bots all offer significant advantages for institutions that look for reduced cost while improving customer satisfaction and growing wallet share. Artificial Intelligence offers a competitive edge by providing deep insights into customer behavior and needs. This facilitates the institutions to sell the right products at the right time to the right customer. Apart from this, the artificial intelligence can give the key organizational insights to identify the operational opportunities and maintain agility.
Sustainable success in business needs insight, rich client relationship, and continuous innovation. Effective benchmarking practices throughout the industry can provide valuable insight, help banks and credit bodies to stay competitive. However, benchmarking alone will not lead to innovations. Business must benchmark to survive, but they should also thrice to innovate. Innovation stems out of insights and insights are discovered through customer dialogue and interaction and continues organizational analysis. The focus should be to address market demands while improving customer experience.
The financial organizations who leverage the latest technology, centered particularly around eland applications, the world have a key advantage in the digital transformation race. Such an organization would certainly innovate faster. Agility and stability is the power of cloud technology.