One driver of this rapid change is innovation and technological development, which is continuously influencing customer behaviors. Another factor is customer adoption. Customers are increasingly transacting through digital means, and at Mashreq, we are witnessing exponential growth in digital transactions across retail, wealth management and business banking. However, this growth is not necessarily limited to those sectors. Customers are also banking digitally in the corporate segment too, whenever they engage in trade finance, payments and ecosystem-based financing.
With these drastic advancements in technology, disruption is now a constant for all financial institutions. Recognizing this, banks are increasingly acting like technology companies and partnering with fintechs to offer a relevant suite of products and services. Despite this collaborative approach, the agility and innovation of fintech startups still poses a potential threat to banks in the future.
So, how do traditional banks stay relevant and succeed in a world of digital disruption?
Concentrating on the customer journey
While banks are increasingly centered on acquiring customers digitally, the real winners will be ones that can engage customers digitally and offer personalization, by crafting a bespoke journey for them.
While this sounds obvious, this means that traditional banks have to embrace agility, which will also help to bring all-new ways of being more customer centric, enabling shorter time to market as well as improving their responsiveness to the evolving needs of the consumer.
In order to achieve this in the digital world, banks will have to change the way in which they operate significantly. Usually, banks are typically organized either as departments or as functions. In the new world, this will not deliver yield optimal benefits. The customer journey, and indeed customers, will matter the most, so it is essential that the entire organization rallies around this focus.
For instance, the concepts of control and risk management will have to improve with more real-time tracking and intervention as opposed to post-facto review and audits. More specifically, in the bank of the future, more online “real-time” controls will have to be built and managed, which will enable the compliance, risk-management and audit departments to tighten control and also contribute towards digital transformation, advancements in technology and business.
As the world becomes more digital, combatting challenges such as cybersecurity, data security and cyber frauds will also become high priority for banks. Consequently, banks will need to focus on implementing a technology platform that is resilient and has the ability to detect, prevent and manage these cyber threats.
Remodeling core systems
Another opportunity for banks is to upgrade their legacy systems. As an example, most banks today have developed reasonable mobile and internet banking capabilities, but while they are based on cutting-edge “front-end” applications, these sit on top of older (or “legacy”) banking systems. Because of this, it means that mobile and internet banking applications run separately and offer different customer experiences.
To take full advantage of the many fintech and ecosystem solutions, it is important that banks modernize their legacy systems. By using more digital processes, banks can reduce customer acquisition and servicing costs dramatically. Purely from that perspective, this opens up new revenue streams that were not present in the physical banking world just a few years ago. Additionally, leveraging newer technology allows for the integrated use of artificial intelligence, robotics, machine learning and big data analytics.
Changing the culture
However, perhaps the most important factor that will enable digital transformation in the banking industry is a holistic cultural change, which in my view will be the most substantial hurdle facing traditional banks. For example, normally the senior members of management in a bank have greater experience on their subject matter, while junior or newer members of staff attempt to catch up. However, this will no longer be the new normal.
On the contrary, in the future, the junior and new staff will have new and in-depth technical skills—which, admittedly, will have to be polished and honed—that the more senior team might not have. This is where banks will have to use both old and new wisdom to find a path where everyone’s knowledge and skills can be harnessed efficiently. It will require a change in mindset, and a substantial one at that.
Compensation, rewards and performance management will also have to be radically changed. The typical employee make-up at banks these days will look very different in the not too distant future. Banks that disrupt will also have to employ data analysts, data translators, digital marketers, social media experts, and implementation specialists in big data analytics and robotics. This will alter the equation dramatically.
Naturally, the current employees of the banking industry cannot be forgotten, purely because they bring traditional wisdom and expertise. However, they will need to be retrained. They will have to be equipped to function in a digital-first banking world. From playing key roles in translating data, leading teams, bridging the gap between data and technology, they will provide the bridge between the new and old, while furthering their own skills.
All in all, this is, to quite an extent, an unpredictable but exciting time in the history of the banking industry—with transformation occurring faster than anyone had anticipated.
By Sandeep Chouhan, EVP – Group Head of Operations & Technology, Mashreq Bank