‘Extremely’ you might answer, there is a reason why banks have been in business for hundreds of years! But the changes in technology and regulations are making experts ask this question and as a banker I am asked this a lot more. So here are my thoughts on the same:
Besides the functional and organisational capabilities of banks, the two most important capabilities are:
- Trust Capability: Banking is about trust, you will only put your money where you have trust! People trust banks with their valuables and that’s how banks remain in business.
- Risk Capability: Banks lend money to make money and there is risk involved. Due to scale and information banks have the ability to take these risks.
These two capabilities have been the cornerstone of banking for hundreds of years and served the banking industry well. With changing times however, there is a third capability which is getting more and more importance these days:
3) Convenience Capability: The more convenient your services are, the more your customer would be willing to bank with you. At the end of the day, it is about convenience to the customers.
The changing times:
The recent implementation of PSD2 in the UK is a proof that convenience is top priority and customers will soon have more and more convenient options. The third-party providers (mostly Tech and Fin-Tech companies) will now have access to bank’s customer information which they can use to provide convenient services to their customers.
What does it mean for banks:
This convenience capability can give them inroads into building trust. Once they have the trust, leads to a growing customer base. Also, with the help of data third party providers will acquire risk capabilities. With so much data and machine learning, risk capabilities of these businesses is building fast. So banks are no longer competing with other banks but also with tech companies.
How Digital Helps Banks Compete:
It’s not that banks are under any potential threat but it’s more about a bank’s capabilities that are being questioned. I feel that banks will always be relevant if they work on their strengths and capabilities. Plus, the trust in banks is huge because of various regulations. There is a Capital Buffer and then there is insurance to bail you out. Moreover, a bank’s customer is aware that their money is safe with the bank, and that’s great position to be in.
So in my opinion going digital is a great enabler for bank’s performance. Not only does it make processes seamless, it strengthens customer relationships which is primarily driven by trust. Digital makes everything so simple and transparent, plus there are lesses margins of error. People know about their transactions immediately which instills a great sense of reliability and satisfaction. Digital provides data that empowers risk capabilities. To top it all, digital also provides tools that makes everyone’s life easier, by simply making it convenient.
In conclusion, I can’t begin to emphasise how big a role digital is playing in the banking industry now. Banks are certainly capable in making technology work for them but they need to move fast and ensure they don’t leave this question hanging out there!