Open banking is a system where credit unions, together with banks and other financial institutions, allow third-party providers, such as fintech companies to access customers’ financial data. However, there is a very important caveat – it can only be done with the customer’s consent. The idea behind open banking is to increase competition, innovation, and
Retail banking is what most of us will carry out regularly to manage our personal finances. Also known as consumer banking, it is the type of banking that provides financial services directly to individuals and households, rather than businesses or corporations.
Core components of retail banking include products such as savings accounts, checking accounts, personal loans, credit cards, debit cards, online banking, mortgages and home loans and car finance.
Recent years have seen a huge shift in the way that personal banking is carried out, largely driven by online technology. Indeed, the rise of online banking, AI chatbots, smartphone apps and other digital channels have made face-to-face banking largely redundant for many people. This trend actually forms the backbone of the phrase, digital transformation. The term describes how financial providers are transitioning from traditional, branch-based banking to modern, digital-first experiences.
The need for digital transformation in retail banking
The need for digital transformation in retail banking is being driven by a mix of changing customer expectations, competitive pressure, and technological innovation.
One of the main reasons is down to us – the consumer. People increasingly expect to bank anytime, anywhere, using their phones or laptops rather than going to a local branch. Furthermore, fast transactions, instant approvals, and quick customer service are now expected as the norm, while digital channels provide much more of an opportunity for personalization. Something which is again now expected. Customers are demanding tailored experiences, offers, and insights based on their own unique behaviour.
The new entrants on the financial services marketplace are also making their presence felt. Startups and tech giants such as PayPal, Apple and Google are offering speedy, user-friendly financial services experiences – meaning traditional banks risk losing customers if they don’t keep up with this pace of innovation.
Cost efficiency is also a factor. Digital tools reduce reliance on physical branches and paperwork, cutting operational costs. Automation also lowers the need for manual tasks, freeing up staff for higher-value work.
Regulatory and security pressures are also ensuring tools offered by digital channels are becoming necessary. Cyber threats are growing, and digital solutions offer solid fraud detection and real-time monitoring. Additionally, Regtech – or regulatory technology – helps banks stay compliant with evolving regulations efficiently.
Core components of retail banking digital transformation
It is therefore clear that there is a need for digital transformation when it comes to retail, or consumer banking.
However, what are the main components of this change?
Automation and AI together present one of the most important aspects of change. RPA – or Robotic Process Automation – is now becoming commonplace for routine tasks such as KYC and document verification tasks. AI-powered chatbots are becoming widely utilized for fraud detection and credit scoring tasks, while machine learning is being used to improve services over time. It is widely accepted that when all these work in unison, they Improve efficiency, reduce human error, and can scale much faster.
Data analytics and personalization is also becoming much more widespread as a core driver of retail banking digital transformation. Customer behavior analysis, predictive analytics for financial needs and real-time insights can all now be delivered seamlessly, ensuring financial providers can offer the very specific products that their customers need.
Digital channels and the experiences of end customers are also, of course, a main driver. Mobile banking apps, online banking platforms, chatbots and virtual assistants are all common today. In fact, most of us will have experienced at least one of these in the last few days. Together, they offer an omni-channel experience, or a consistent service across mobile, web, ATM, and branches.
The advent of cloud computing has been vital to increase agility, speed and cost efficiency for financial providers. Cloud-based core banking systems, scalable data storage and processing, and faster updates and deployments are all working together to achieve the best service functionality for consumers.
Additionally, cybersecurity and risk management is also a core component of digital transformation. It offers multi-factor authentication and biometrics, real-time threat detection and fraud prevention and compliance with data privacy regulations such as GDPR. Working together, these enable a very important end goal to be met – the protection of customer trust, data, and financial assets.
Benefits of digital transformation for retail banks
There are many benefits of digital transformation which can be summarised as follows:
- Improved Customer Experience: The fact is that 24/7 access via mobile and online platforms provide faster, more convenient transactions. The addition of personalized services based on customer data also ensure customers feel like they matter and are treated as individuals. This is likely to foster increased loyalty among them.
- Increased Revenue Opportunities: Digital functionality can provide better cross-selling through data-driven insights. New digital products like mobile wallets and robo-advisors can also reach more customers, even in remote areas. Such functionality furnishes financial providers with more opportunities to upsell and cross sell – which is high on the agenda for any CEO or member of a financial provider’s C-suite.
- Greater Operational Efficiency: Automation of routine tasks, such as KYC and loan approvals reduce the need for paperwork and manual processing. As a result, fewer errors and faster turnaround times result in lower costs and higher productivity levels.
- Data-Driven Decision Making: Real-time analytics for customer behaviour, risks, and trends result in smarter, faster decisions in lending, marketing, and fraud prevention. Therefore, this allows a financial provider to deploy much better strategic decisions and performance metrics.
- Future-Proofing the Business: Staying competitive with fintech and digital-native banks provides the ability to quickly adapt to market or tech changes. This results in long-term relevance and sustainability for the financial provider.
Conclusion
The digital transformation journey is already engrained within the DNA of most financial providers.
Even those which still pride themselves on offering a high level of personal, face-to-face service through a branch network are likely to also have digital channels running alongside this approach.
The fact is that there is a need to make the transition. Consumers are increasingly demanding and expecting it. However, it is also more than capable of dramatically increasing the efficiency of financial providers. Therefore, a solid digital transformation strategy will not only appease their customers, it will also help profitability.
What’s not to like?
