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Five Banking Trends for 2018 Driven by Data Disruption

Appian Contributor
December 7, 2017

There is a "new reality" for financial services institutions that McKinsey attributes to the compelling value premise coming from digital players like Alibaba and Amazon. These emergent companies have begun to claim a strong stake for bank customers by targeting the most profitable parts of the banking value chain.

The result? Data-driven Disruption!

In this episode of our Twelve Days of Digital Transformation blog series, I predict the five ways that bankers will be responding to this disruption in 2018.

Leading Banks Are Embracing a New Reality

While the global banking industry shows many signs of renewed health, performance remains lackluster. The industry's return on equity (ROE) hovers around 8% and investors remain cautious about profits, reflected by bank shares trading at low multiples.

And now banks are facing a new competitive threat.

New digital entrants are also having an impact on bank performance, particularly by threatening the customer relationship and margin erosion across retail segments

-- McKinsey

In this current scenario, banks have little choice but to take steps to remain relevant or face the risk of being downgraded to a mere utility.

After all, the original business model of banks is built for face-to-face interactions backed by paper documentation. Whereas the business model of digital banks is for device-to-device interactions backed up and driven mostly by data. The two extreme models remain poles apart, but the right digital technology to drive personalization, customer-centric service, and simplified interactions can turn data-driven disruption into opportunity for traditional banks.

Data as Fuel for Digital Banking Transformation

At the recently concluded Sibos 2017, industry experts confirmed the spotlight on data as the fuel for digital transformation. When data is integrated and made actionable through the full spectrum of automation capabilities such as RPA, BOTS and Artificial Intelligence (AI) transitional Financial Services Institutions (FSI's) can refine operating models and business processes.

This is especially encouraging news for banks, which carry boatloads of data mostly transactional and some behavioral that can be fully leveraged in concert with emerging technologies to provide a better, faster, more personalized banking experience.

Using the GAFA Model to Keep Pace

In today's digital technology age, we are all inherently driven by the "GAFA effect" (Google, Amazon, Facebook and Apple), where we have grown accustomed to getting what we want, when and where we want it by clicking one button on our mobile device. And this impact is carried over to the inherently service-oriented banking culture, where customers whether individuals in retail or corporate side demand instant action. This expectation has now become the norm and any sign of its failed delivery will drive businesses to another provider of choice, where they might receive the engaging experience they have come to expect from the GAFAs.

This insight is further validated by the latest Forrester insight: customer demands will drive digital banking transformation. Banking executives now understand that digital transformation means business transformation.

Banks that really get the secret formula down, and take the bold step to implement proven tools have already come a long wayÖ with the right digital technology, these banks can deliver holistic and engaging experience and manage to stay relevant across all customer segments.

Predictions for the Top Five Trends

So, what steps will savvy bankers take to stay relevant in 2018? Here are my predictions:

    • Customers will be the new market-makers, redefining banking and changing the rules of how to compete and win. Banks must deliver innovative and customer-centric offerings, enabled by effective segmentation. Sooner than later, banks must understand the true cost of an offering and this would include all explicit costs as well as hidden charge. Ultimately, the aim for all banks is to offer attractively priced products to appropriate segments including mass market and high-net worth individuals. Success on this dimension will depend on how well and how fast banks respond. Find out how one of the largest banks in Australia is transforming their customer experience by using Appian as their digital platform. Watch this video - Digital Transformation at Bendigo Bank.

    • Banks will deliver seamless and efficient customer-centric experiences with the help of a continuum of enterprise automation technology, including such as Robotics Process Automation (RPA) and Artificial Intelligence (AI). In the past decade, traditional legacy banks have retained focused on the transaction at hand and within the moment, here and now and have managed to pay little heed to the value of customer relationships across time-series continuum and related activities. Now with an emphasis on a broader 360-degree view of the customer, banks can better offer relevant offerings to customers. Automation will become an integral way to drive differentiation; with chatbots, cognitive agents, and additional AI technologies integrated for stronger customer-centric capabilities.

    • As part of delivering client-centric experience, banks will revisit business processes to digitally integrate front-end and back-end operations. Bankers will realize that to deliver a transformed business model, they must integrate across touch-points and channels to deliver real-time customer engagement. For example, KeyBank uses analytics to better understand its customer references and deliver tailored offers and services; TBI Bank leverages cloud-based risk analytics to make consistent credit and loan decisions in seconds.Watch this video to learn about "the four C's" of a successful omni-channel strategy for Financial Services institutions. How Omni-Channel Strategies Transform Financial Institutions.

    • Banks will adopt innovative, yet proven low-code platform technology to drive operating efficiency. The right digital technology can deliver cost advantage. Senior banking leaders are seeking ways to improve topline ROE via cost cutting measures, risk-weighted asset reductions and portfolio rebalancing. Each of these can have a significant impact on a bank's health, but they do not all add value equally. Adopting platform technology promises to be the single biggest factor to move the needle on the bank expense to revenue ratio. Check out the Five Levers to Impact Your Bank's Efficiency Ratio ebook to see how and learn more.

    • Banks will leverage unified platform technology to enable holistic compliance. Regulations aim at maintaining financial stability, but many firms respond to changing regulatory requirements with a linear and reactive approach. Staying in charge of rapidly changing regulations will require technology with a flexible, yet disciplined approach. As financial institutions take measures to comply with complex and overlapping regulations, traditional approaches to technology are quickly rendered ineffective. With an integrated unified digital platform and intuitive interface banks can address the challenges around compliance and deliver differentiated customer experience. Leading banks are already incorporating compliance requirements in their business and technology strategies. Explore the ebook How to Stay Compliant and Mitigate Risk with The Digital Transformation Platform.

Strategy Drives Execution

Taking a hard look at data-driven disruption this holiday season and then creating your "new reality" strategy will enable banks to deliver completely engaged experiences in the future.

As you get ready for 2018 and finalize your plans, I invite you to watch this webinar to help inform your priorities. Special guests include Jost Hoppermann, Vice President of Application Development & Delivery at Forrester and Michael Heffner, Vice President, Banking and Capital Markets at Appian. Hear their insights into:

    • The top trends that will influence the way financial services leaders design, select, and deliver customer-centric applications for the future

    • Why Digital and what does digital banking mean? How can digital transformation unleash business innovation and deliver efficiency for financial services institutions?

    • Top business requirements and transformation priorities based on studies and survey data

    • Digital banking and new technologies for 2018 and onwards

The big question might well be where to start. Well, that will depend on your strategic business imperatives for 2018.

Milan Dandawate,

Industry Marketing Manager, Financial Services