For banks, it’s time to do the work to digitize end-to-end processes: not “by the end of the decade,” but now. This is one of the biggest opportunities in front of banks today.
- Ashish Jain, Principal, PwC US
For better or worse, a crisis focuses our attention. So many nonstrategic and nonessential activities are already dormant. Don’t restart them. Instead, use a zero-based budgeting process to reassess your 2020 plan so those costs and distractions stay cut.
As you prioritize your spending, you may be tempted to make some snap decisions. For example, you may be told, “Let’s cut marketing. It’s discretionary and in our control.” But topline growth is strongly tied to marketing spend, and cutting indiscriminately could cede ground to competitors. Are you proposing cuts to a marketing analytics program that lets you see customer preferences at a detailed level, or a sponsorship with an ambiguous ROI?
It’s amazing that banks were able to disburse billions of dollars in stimulus funds with only a few days to prepare. But for many, the struggle to modify existing systems resulted in a lot of manual work to process the loans. The pandemic also revealed some shortcomings of past automation programs, in which banks deployed robotic process automation (RPA) as a point solution without looking at the bigger picture.
We recommend taking an end-to-end view of processes—from the client’s initial data input to closing, or from a customer’s initial request, to servicing their product, to closing the request with resolution. This approach requires investment, and it also might require reallocating some of the technology budget from front-office digital tools to infrastructure for back-office operations. When this is done right, the payoff can be achieved in as little as 12 months, and the outcome may include an operations platform that can scale up or down quickly.
There’s an inherent trade-off between operating simplicity and redundancy. Some banks are discovering they’ve added too much risk by concentrating their vendor programs too aggressively. But dialing supplier concentration up or down to prepare for life after the pandemic is only part of the story.
We expect to see a shift in thinking, in which banks will likely look to digitize and streamline their scale processes before even thinking about outsourcing. Whether you keep work in-house, turn it over to external vendors or take a hybrid approach, digitizing your processes may let you incorporate remote working as needed. For many, that means including the workflow technology, collaboration tools and new sourcing risk management capabilities that are currently absent in many organizations.
Going forward, we expect to see many banks diversify their sourcing strategies and move toward a multi-vendor, multi-location norm.
The pandemic highlighted the need to reimagine customer interactions. Some banks quickly innovated by using excess staff in branches to take calls and service customers, but that highlighted issues with training, access and inflexible processes, to name but a few.
Leading organizations now look to build a high-tech, high-touch customer servicing model that enables virtual work from home when needed, and over 90% of which involves non-human interaction. Making the new model work will require cloud-based infrastructure, supported by artificial intelligence (AI) and natural language processing (NLP) technologies, to quickly assess a client’s need and solve it as efficiently as possible. When done well, the new models can provide banks with better customer service, more flexibility for workers and cost efficiencies.
The current crisis could condense years of additional branch network consolidation plans into a few months. As one CEO said, “Nobody expects that all of these branches will reopen at the end of the crisis.”
Before any focus on growth, we suggest segmenting your customer set to understand how their financial needs have changed and how the crisis may have altered their behaviors. Conduct research sprints that you can translate into integrated propositions and rapid prototype testing with risk, finance and compliance partners. The results could shape the products you sell, the way you promote them and your distribution model.
At the center of today’s product design approach is a relatively distressed client balance sheet. With changes to personal savings, reliance on debt and the ways in which users access the banking system, product preferences will likely change. Some effects are pretty clear. Users of certain credit cards, for example, will probably place less value on travel rewards linkages, and that could lead banks to redesign their payment propositions.
Regulators have turned to the banking sector to provide more credit, as shown by the Paycheck Protection Program (PPP) and Main Street Lending Program. Some credit product lines—such as home equity lines of credit and other home equity offerings, securities-based lending and unsecured lending—may become significant growth opportunities over the medium to long term.
Retail banking customers, especially younger ones, increasingly consider transactional services, such as real-time payments and cards, as their primary account, not a deposit account. The COVID-19 crisis may only accelerate this trend for all demographics.
Rather than fighting these forces, you may want to take advantage of them, especially since the cost of organic customer acquisition has typically been so high. As an example, banks can make far better use of affinity marketing partnerships. Your brand may have powerful positive associations, but some high-value customers may trust a co-branded entity even more. By creating timely offers that align with a customer’s specific needs and a common bond, you may increase your bank’s relevance and ranking in your customer’s eyes.
In the COVID-19 crisis, most retail banks made changes to branch distribution and client service operations. The number of US bank branches had already been shrinking at a net rate of 1 to 2% per year, and the current crisis could condense years of additional branch network consolidation plans into a few months. As one CEO said, “Nobody expects that all of these branches will reopen at the end of the crisis.”
Branches remain the industry’s largest operating cost item, even before considering the new costs for facility cleaning and additional health safety measures. The catch is that, with few exceptions, banks of all sizes still count heavily on branches to anchor their new customer acquisition strategy and product sales. Retention could also become an issue. Bank customers are usually loyal to their primary bank, except when facing major life events like job changes, moves and personal relationship changes: changes we might expect from the pandemic.
So how can banks make digital acquisition work more effectively? Start by raising your expectations. Digital channels have been a great driver of service, but until recently, they’ve been an afterthought for attracting business at most banks. Now it’s time to use them to find the high-value customers your bank needs.
To do that, you’ll need to understand the drivers that matter on an individual level. Digital-only channels are now mature enough for banks to understand the variables beyond deposit rate—such as product type, convenience and brand—that can improve deposit quality. For some, the driver may be service quality. For others (even customers who are price-insensitive in other areas), it may be promotional pricing.
Instead of trying to create a virtual copy of the branch network you and your customers have known for years, ask: What new opportunities does digital-only distribution offer that we can’t access in our current model?