Four Strategies to Build the Smarter Bank

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Four Strategies to Build the Smarter Bank

Thought Paper


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Four strategies to build the smarter bankRobert Kiyosaki, American investor and author (of Rich Dad Poor Dad fame), hits the nail on the head when he says, “You have to be smart. The easy days are over.”

Four years since the toughest financial crisis in over hundred years broke, the world still hasn’t come to a state of equilibrium. For consumers, who have been hit hard, it has never been more critical to make the right financial choices – while building budgets, protecting assets, repairing credit history, or simply making ends meet. For banks, this is a time of recurrent cyclical change, in which crisis is followed by recovery, only to be followed by crisis, to leave a lasting impact on the global economy by redistributing influence and power.

So it is no surprise that survival is the current flavor of financial services. Consumers have traded their fondness for debt for a smart spending mindset, with the hope of reclaiming financial terra firma; and similarly, banks are doing what they can to keep their heads above water. Under severe pressure, it is easy for banks to content themselves with surviving; they must be careful

The smarter bank eyes both organic and inorganic growth; hence it not only enriches its own products and services through innovation, but also complements them with external offerings sourced through partnerships, white labeling deals or co-opetitive arrangements.

Its product innovation extends to smart bundling, which means the creation of a bundle of products and services in real time, in the context of the immediate situation, location or need. With the crisis over-looming the economy and consumerism, customers are more and more

that such complacency does not become an impediment to their growth, leadership and relationship with customers in the future. As consumers go about trying to manage their money, there is an opportunity for banks to show them that they’re not alone – by being the ideal financial partner that listens, understands needs, shows respect, acts with integrity, serves with a purpose and exceeds expectations through its products, services and financial guidance.

In other words, by becoming a smarter bank.

But first, what is a smarter bank?

• A smarter bank is differentiated on the outside, which makes it agile in the marketplace.

• A smarter bank is simplified on the inside, which means it has a simpler operating model.

• A smarter bank uses ease of execution to deliver excellence and efficiency.

All the characteristics of a smarter bank, detailed in the next section, can be classified under the above three attributes.

Differentiation on the outside leading to agility in the marketplace

cautious about the cost of the service that they are getting from banks, affordability, convenience and accessibility. Differentiation cannot be on the product and services but on how they are priced, the way they are distributed and relevance to the customer. For example, customer must have convenience and flexibility to choose the right service accordingly to their ability to pay. In other words, customers determine the price of the service that they avail from the bank and use it to their convenience – a phenomena similar to combining Do-it-yourself & Pay-as-you-use.


Ease of execution leading to excellence and efficiency in delivery

The smarter bank runs a one stop shop; it’s the hub in a networked multi channel environment where all products and services are provided to customers, from end to end, under a single roof, through the branch or any other channel.

Business is rapid at the smarter bank, which is quick to identify and tap new markets, zero in on the target segments, and understand their unique and specific needs.

Simplification on the inside leading to a simpler operating model

The smarter bank simplifies continuously to sail the seas of complexity. For example, it standardizes products, processes and systems on an ongoing basis.

There is a vast area banks can include in their approach to simplify. This approach cannot be just through one initiative or a program

but become a part of organization’s DNA. Simplification aims at achieving process efficiency, as a means to create differentiated experience through every interaction between the customer and the bank. For example, the communication to customer in the form of offers, contracts and pricing can have a simplistic approach of how it is delivered. This cannot be at the cost of burying the complexity with technology but simplifying the processes and practices through technology.

The operating model constituting design to delivery of products & services need to align with the organization goals. Simplification would be one of the imperatives driving these goals. At the same time, quick scalability – a hallmark of the smarter bank has to be supported by simpler operations and optimized cost to run those operations.

The smarter bank takes the path of online real time, and high automation, to achieve ease of execution.

It is a facilitator of All Time Banking, wherein every functionality, however granular, is available to and used by banks, bank employees, bank’s partner ecosystem and customers round the clock, independent of location. In the smarter bank everything, from technical features to system functionality to business processes to products, interactions and channels, is Anytime, Everywhere. It achieves this by aligning business processes with the bank’s product innovation, channel diversification and customer experience strategies.

While there are many ways to build a smarter bank, some factors will play a central role in successful strategy. These factors, and their impact on shaping the attributes of the smarter bank, are discussed below:

Customer engagement

The smarter bank faces many challenges on the customer retention front: more competition, including from non-traditional players; waning loyalty, especially among younger customers who are distanced from their bank; and loss of customer intimacy to self-service banking.

The answer lies in finding new ways to improve engagement. For instance, a smarter bank might look at improving its understanding of customers through a more refined segmentation approach that takes into account customer aspiration, attitude and behavior in addition to objective criteria of demography, ethnicity, geography and financial status.

It might turn the rules of product promotion on its head to go from product oriented customer communication to customer tailored product communication, in which each message is crafted


to suit the recipient. Or fortify the traditional channels of product distribution – branch, ATM, kiosk – with social media outreach.

Then again, the smarter bank would be quick to identify the benefits of using higher customer information management technologies, such as analytics and predictive modeling over the traditional tools of CRM and offline market research campaigns, in real time decision-making.

Customer and Employee Empowerment: From its extensive studies of human behavior, Gallup has established that customer satisfaction is meaningless without emotional connection, and that businesses need to cultivate both in order to secure beneficial financial outcomes, such as higher spends per customer or lower attrition.

Therefore, the smarter bank must aim at creating a relationship from which the customer not only derives rational satisfaction (good products, competitive prices, easy reach) but also finds emotional fulfillment. Empowerment is the key to such relationships. The bank must empower its frontline staff with: technologies that provide them a unified view of the customer relationship

and an accurate, enterprise-wide view of the bank’s products and services; tools such as product configurators, simulators, modelers and goal seekers that suggest the right financial advice for each customer; and technologies like Internet, mobile and Push to Talk that give them – as well as the bank’s subject-matter experts and product managers – easy access to customers. Indeed these technologies are also vital building blocks of the smarter bank, as they help to simplify operations and improve execution by enabling real time automation, All Time Banking, and the creation of a one stop shop.

That being said, the tools of technology are mere tools, and most banks have them. What differentiates a smarter bank from the rest is that its employees know how to leverage these resources to elevate customer interaction to a level above the purely transactional, at which they are able to understand the customers’ broad needs and specific context, and accordingly make superior, intelligent suggestions and guidance, instead of merely giving them what they ask for.

Convergence of bank and customer ITToday, the line between organizational and personal systems has started to blur, as individuals tap into the same technologies and devices during and outside of work, and companies leverage what were once considered personal technologies to expand their business.

The smarter bank must abide by this trend and take its business processes outside of its four walls, into the consumer IT domain of social media and personal mobility tools. This means, for example, that the systems and processes supporting interaction between a bank and its customers should also be available on social networking sites.

When bank and customer IT converges in this manner, it will also enhance the bank’s other smart attributes, such as differentiation (like Citibank’s loyalty program application on Facebook), ease of execution (for example,

enabling customers to move seamlessly between a banking channel and their social network in order to seek a bank advisor’s opinion, validate it with their friends, and complete a purchase, all during a single interaction) or product innovation (by using consumer insights from social media to develop new offerings).

Acceleration:

This is a strategy, which a smarter bank can deploy to cope with the constancy of economic crisis and recovery. While other banks conserve their energies and resources to wait out the current upheaval, the smarter bank goes into overdrive to find a way to orientate its current business model to a future direction. It uses this quiet period to revisit its priorities and areas of focus and investment. For the smarter bank, the goal is not to survive the crisis by


slowing down, but rather, to charge ahead of its rivals into a better future.

What next for banks?

The last financial crisis has left a huge impact on banks, manifest as lower growth, smaller profit, bigger demands, more regulation, and so on. It has also driven customers into the arms of new age service providers, employing creative technology, innovative business models, and customer-centric measures to satisfy needs that might have been overlooked by the established

players. With every bank adapting strategies to win over their current state, what’s differentiating now can easily become something that can be imitated. Rather differentiation becoming a milestone, it has to be a journey that banks take to succeed.

Although banks may still choose to wait and watch, they cannot remain much longer in the traditional mould because there’s a breed of smarter banks out there, just waiting to take their place through better engagement, empowerment, and use of technology.

Sai Kumar Jayanty Lead Product Manager, Finacle

Finacle from Infosys partners with banks to transform process, product and customer experience, arming them with ‘accelerated innovation’ that is key to building tomorrow’s bank.

About Finacle

© 2012 Infosys Limited, Bangalore, India, Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.

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Four Strategies to Build the Smarter Bank

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