Updated on 27/04/2022
Technological innovation has changed and is radically changing the banking sector. Between omnichannel, improved customer experience, elimination of physical touch points and home banking apps, credit institutions are at a crossroads: innovating towards a digitalization of the sector or disappearing.
In any sector, digital transformation and technological innovation are two challenges, but above all, two opportunities not to be missed to remain competitive. This is particularly true for the banking field, for which the digitization of services is an obligatory step. In other areas, it is the same thing; think of shopping with the advent of e-commerce, or marketing and even communication.
The commandment is: Innovate first.
However, in practice, there are elements that can actually slow down the adoption of innovative solutions. The first is undoubtedly the tightening of regulation. Given its delicate role within each company, the banking field has a complex and articulated set of rules that constrain many of the activities that the bank can perform.
For example, advertising is subject to specific requirements in order to ensure that customers clearly understand what’s being offered and how it compares to a competitor’s offer.
Transparency and consumer protection are two key objectives when setting out the regulatory framework for the management and control of retail banking products. The services that a bank provides are often sophisticated and complex. All of this obviously requires a specific system of rules. This significantly reduces room for manoeuvring, as approval and implementation processes take time, while innovation, especially digital innovation, happens over a much shorter time frame.
This complexity can make it difficult for banks that find themselves playing the part of Goliath in a market that rewards organizations that value David. Just think of the number of apps, start-ups or scaleups that provide simple and fast services that can partially replace the bank’s activity. Take these examples from the banking field: Nutmeg for wealth management, SyndicateRoom for equity finance, Starling for banking account management or TransferWise for foreign currency transfer.
In addition, a further factor slowing down technological transformation is internal resistance. In some cases, in fact, innovation involves risks, since it leads to the exploration of unknown areas. It is not always easy to push a structured and consolidated organization to open up to new processes, also because of a division of internal responsibilities.
For this reason, it would be necessary to provide for effective governance systems that encourage those responsible to address risk as a necessary (and sometimes positive) component of innovation. Doing so would encourage them to propose and accept any critical issues as opportunities to develop original solutions.
In addition, it may happen that the bank lacks the necessary workforce to carry out this transformation. As we will see below, not only banks, but all businesses need specific skills to cope with digitization. This often translates into the creation of new jobs that previously didn’t exist. But such skills are not always immediately available within the labor market or are not, at least, always affordable.
This short list of difficulties makes two things clear.
First of all, when we talk about technological innovation, we cannot limit ourselves to purely technical improvements; we must also take into account real structural developments. Next, technological innovation is never easy or obvious. However, this has not prevented banks from undertaking important changes over the years.
Moreover, according to a report prepared by McKinsey still current, the digital transformation must be supported by all credit institutions in a fast and convinced way, in order to remain competitive in the market. The banks, no doubt, are aware of this and this is demonstrated by some trends that, for some time, have started to ride.
Banks are undoubtedly aware of this, as current trends indicate.
First trend: branches disappear
First of all: Time to rethink the traditional retail facilities.
The bank has always been a provider of services that are intangible, heterogeneous (because they vary from customer to customer) and perishable (because they cannot be stored and used at a later date). Precisely in light of the product characteristics, a key element in the marketing strategy for financial institutions was the physical evidence.
It was, in fact, fundamental to control the physical location both in terms of communication (e.g. posters, leaflets, etc.) and in the development of functional touch points where the relationship with customers could be built. This is demonstrated by the fact that in 2012 there were 32,881 branches in Italy, and the number of branches of some of the main Italian banks exceeded (and not by a small margin) exceeded the number of retail outlets for some of the largest players.
On the contrary, not only is it going and it will tend more and more, towards a constant closure of the counters and a reduction of the operating branches on the national territory (in the last two years there has been a decrease of 3.4% of branches in Italy), but it will reorganize the distribution of services, so that the fruition happens on internet, from the computer or from the phone (source: bancaditalia.it).
In this way, it will be possible to realize a remarkable saving in terms of costs tied to the maintenance of physical points and it will go more met to the necessities of the customers.
Second trend: the bank in your pocket
The second trend, on closer inspection, is connected to this. Banks are increasingly looking to offer private individuals and businesses new solutions such as a zero-cost account that reduces both fixed costs (including card costs) and variable costs (such as costs for transfers and payments). In this sense, an interesting evolution of banking services could be that of the increasing development of banking apps.
In fact, it has been found that access to banking services via smartphones has increased by 71% among those using such applications in recent years. This is not surprising when you consider that more and more users/customers are looking for a digital-first experience. According to McKinsey, customer satisfaction increases as the digital component of the customer journey increases.
Where services are offered and used only and exclusively through digital formats, these are preferred over the “hybrid” services, which require some actions to be performed in a physical location such as a branch office.
Third trend: Omnichannel for customer experience
The third trend s the shift by the main credit institutions towards an omnichannel vision both in terms of communication and marketing. What does that mean?
By omnichannel vision, we mean an organizational approach that is oriented to the integration of the physical and digital channels in order to offer the customer a unique shopping experience. In other words, banks are starting to use all of their communication channels to reach the customer (or potential customer) in support of retail activities, branding or awareness.
In this way, it is possible to integrate telephone communication (SMS), digital communication (email) and offline communication (the branch), thus creating an ecosystem of perfectly integrated and coordinated channels that can be activated in different ways depending on the type of customer you want to reach.
The goal, in the end, is always the same: to offer a unique and personalized customer experience in order to effectively convey your messages.
In essence, banks have realized that each customer is looking for a personalized experience that meets his needs and requirements as closely as possible. This kind of experience necessarily passes from digital to mobile. The growing attention paid to customer experience is also demonstrated by the way banks manage their social channels (which have become essential).
According to the ABI Report “Banks and social media,” 92% of Italian banks are present on social networks and use them mainly for customer care activities and to strengthen their brand image and reputation. The same areas of use are also those where there has been greater development.
Moreover, it is clear from the results of the report that social channels are the main tools with which to open a dialogue with the public: about 83% of banks interact directly on social networks with customers in order to provide interactive and personalized customer support.
Among other things, customer care (and this highlights a further trend for the future) is considered a major opportunity to build and deepen a personal dialog with its customers / users, strengthening the positive dynamics of individual involvement.
Fourth trend: the consumer at the center
This shows how the attitude toward the customer has changed.
When it comes to marketing, banks are starting to adopt a strategic approach, i.e. they aim to develop a systemic view of the market, taking into account the characteristics of the target market and the needs of the target customers. In fact, it is no longer sufficient to pursue a purely operational marketing model, in the short or medium term, in which objectives are set in terms of market share and positioning, using a mix of product, price, promotion and point of sale.
On the contrary, to achieve good results, especially in communication, it is necessary to develop a broader strategy that aims to strengthen the relationship with the customer, who, especially with the advent of social, has become more demanding. For this reason, communication within the sector is changing radically.
In this sense, it is essential to focus on a few clear and essential messages. At the same time, all types of processes need to be simplified.
For example, it has been observed that the quality of the experience perceived by users/customers varies considerably according to time: the less time it takes to complete an action, the higher the level of service will be considered. It is no coincidence that banking apps also take into account the so-called “two tap rule” theorized by Marissa Meyer, according to which a user must be able to successfully complete a process with no more than two taps.
In addition, banks must be able to provide solutions that meet other requirements, such as security, visual appeal and usability. To develop such content, banks need specific skills that are difficult for a bank to develop on its own.
Fifth trend: there is no technological development without specific skills
For this reason, some new roles are emerging that are destined to become more important.
One figure that is becoming increasingly important, for example, is the fast prototyper, i.e. one who is able to carry out prototyping processes, simulating the development of a product, service, or situation. By doing so, it is possible to reduce financial losses and more effectively meet customer needs and requirements.
In the new concept of marketing where a bank must establish lasting relationships not only with the customer but also with society and the environment in which it is placed, the CRM (Customer Relationship Management) Specialist—the expert in managing relations with customers—is becoming essential. The latter aims to strengthen the relationship with consumers to make it as solid and long-lasting as possible, so as to create a real community of customers identified by values, principles and interests. The CRM Specialist must be able to segment the various customers according to social background, needs, and interests. In this way, it will be able to identify coherent and distinguishable clusters and guide future strategic choices (how to contact them, when, using which channels, etc.).
Closely related to the CRM Specialist is the data analyst who collects data through the use of network listening tools and other technologies. Subsequently, he analyzes and interprets them, in order to identify their origin and to determine trends.
These skills are essential for any company that wants to be competitive on the market and the data can testify to this. According to estimates from the World Economic Forum, by 2020 data analysts will be the most sought after professionals in the world. It is no coincidence that, out of a sample of 550 small- and medium-sized Italian companies, 50% said they would hire a data analyst in the next three years.
Not only that.
Based on research carried out by Modis who interviewed companies of various types (including banks), it was found that 97.44% of those interviewed consider the analysis of big data an opportunity, especially that in relation to sales and marketing, and despite the fact that about half of the same sample considers these profiles difficult to find in the labor market.
Finally, another figure of interest for banks is the content specialist, i.e. the person who gives voice to the institution by creating content of value that is relevant and consistent with the bank’s positioning so as to attract a qualified audience and lead the user to a profitable conversion for the company.
There is a common thread that unites all of these new skills, and which is driving technological innovation for any organisation that wants to do business effectively: the attention to the customer.
Each future innovation will, in fact, be designed to make the relationship with the customer-user even closer, simpler and more direct, and giving as much attention as possible to the individual needs of each.