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Succeeding digital banking

COVID-19 has accelerated digitization of banking as customer expectations change during the pandemic. This potential digital change would also help banks cope with the tougher operating environment the pandemic has brought. For the longer term it will be a fundamental step in boosting profitability and returns in the sector. Banking sector is becoming more and more functional providing us with advanced easements and facilities. We are witnessing unstoppable transformation in the ground of digitalization. Certainly, customer satisfaction and personalization of products’ sales became a key-factor to be a successful player in this environment. Over the years, customers are becoming increasingly demanding what is visibly powering this process. The rise of the smartphone and the introduction of new digital technologies have replaced an ‘old-fashioned’ form of liaison between customer and bank as the drivers of strategic thinking at banks around the world.

The pandemic created a monumental shift from physical to digital by accelerating the natural progress many times over. People have adopted new behaviors that will become habit-forming. Just being digitally developed is not enough to ensure the existence of any financial company. The future of banking is undoubtedly digital, but is there any place for human touch? It seems to be needed, especially when it comes to sale of products and handling more complex banking transactions which demand face-to-face identification and identity verification.

However, now one can be served with the same attention and personal touch as in traditional branch, but directly from home, work or any other place which suits the customer, without worrying about working hours, as the bank consultant is available 24/7. This one needs only a cell phone, tablet or computer to meet with the bank. If there is a need to be presented with some numbers or calculation, the bank’s advisor will display it on the screen to collaborate. Customer would be able to receive or send a file from your device or camera, if the exchange of documents is demanded.

The speed of change is key, as innovations in technology spread throughout the world, banks embarked on paths of rapid change which have gathered pace and will continue into 2021 and beyond. Disruptive technologies, including Artificial Intelligence (AI), machine learning, and robotics process automation are going to determine future successes and provide a wide range of opportunities.

It has been estimated that 38% of banking industry customers pointed to user experience as the most important criterion for choosing a digital bank (Source: Digital onboarding for financial services).

Due to the higher operational costs brick and mortar bank branches generate, they will be reorganized and take new forms such as financial consulting centers or spots, where people can deal with specialists. Many leading banks have already started reducing the number of bank branches and staff employed there. In countries where the market is sated with bank branches, it is expected that a 20% decrease in their number will occur by 2020. Year by year the importance of technology will be greater, and deploying AI solutions will testify to effective tactical operations.  Since services will be far more personalized, AI techniques are needed to analyze behavior, information and discover customers’ demands and to eventually build an intelligent conversational banking platform. Although thus far the banking industry hasn’t implemented AI solutions on a broad scale, in the next few years we will witness their full integration into day-to-day business. In 2019 the digital banking mainstream was led by chatbots, which were incorporated into many banks’ strategies to help solve basic problems and create a more customer-connected bank. It is predicted that by 2022 chatbots will be responsible for costs savings of over $8 billion annually.

Unfortunately, cyber threats have grown along with increasing online activity. These risks go hand in hand with the tremendous speed of technological development, global data exchange and open banking, which enables third-parties to access customers’ data. The newest source of risk that is becoming more prevalent is IoT (Internet of Things). As a fascinating solution, which significantly eases everyday activities, it also tests a bank’s security system and threatens clients’ data security. How? Banks establish cooperation with producers of mobile devices, such as smartwatches or fitness trackers, enabling mobile payments. If banks do not have appropriate protection, companies dealing with the service of these devices may not keep up with patching all security holes. As a result, hackers have much easier access to personal data. The more devices attached to the process, the higher the risk of being hacked.

Irreversibility and the inability to make changes are factors that increase safety, and a permanent historical record is a backup of all operations that ensures their authenticity. In the traditional model, all information is located in one place, secured with obsolete security systems, easy to be bypassed by hackers. Furthermore, the block chain system decreases operational costs and administrative burdens, since it can be implemented in diverse areas such as payments, contracts, applications, insurance or trade financing, while improving the time-consuming KYC (know your customer) process. One disclosure of KYC documents can be used by other banks and authorized organizations, so once a customer’s ID is checked and verified, there will be no need to repeat the KYC process. In line with customers’ expectations, a great advantage is the introduction of real-time payments.

Implementing opportunities

In modern times, when many customers are digitally savvy and any visit to a bank branch is perceived as a waste of time, an eKYC onboarding process should be as efficient, seamless and convenient as possible. Financial institutions should focus on decreasing time-consuming and frustration-generating activities. As 38% of banking industry customers claim that user experience is the most important criterion in choosing an appropriate bank, creating rewarding and meaningful customer experiences should be a priority for financial institutions.

In regards to opening accounts, clients face the following challenges:

  • A bank has an interesting offer for a current account package but doesn’t enable clients to start the account opening process online, thus a visit to a bank branch is needed.
  • A bank claims that the online account opening process is available, however, after filling in a form a client is asked to visit a branch or use a courier service to complete the process.
  • The account opening process in the bank branch is time-consuming and is connected with inordinate amounts of paperwork.

Bearing in mind that modern customers are reducing face-to-face contact and want the capabilities to perform all types of banking services regardless of time and location, an eKYC system provides opportunities to open bank accounts without the necessity to visit a bank branch and includes other benefits like:

  • Opening a bank account, getting a credit card, personal loan, and executing more complicated processes e.g. applying for a mortgage or acquiring investment products.
  • Boosting the flexibility of access to offered services & banking products.
  • Giving clients a chance to choose between a virtual and stationary bank branch, depending on individual preferences and needs.

Furthermore, customers are provided with instantaneous support depending on their needs and employees are less burdened with paperwork, have real time access to records and can easily evaluate a customer’s details. This procedure is not only efficient but also cost- saving, and helps elevate a brand’s image.

There are three types of eKYC systems available to be launched, depending on local legislation:

Fully- human supported eKYC: It is based on continuous contact with an agent, who is engaged in the whole process, supported by OCR (optical character recognition) and face biometrics. In this process a customer visits a website and completes the form online. Subsequently, the process is finalized by an advisor from the bank.

Semi-automized eKYC: It is a customer provides all necessary documents via online/mobile banking and is then connected with a liveBank advisor who helps to finalize the process. A customer is asked to provide a selfie and a photo of ID card.

Fully-automized eKYC: This process is finalized completely without human support. In case of any difficulties, a LiveBank advisor may join it for a second check.

The human-assisted process makes it possible to open an account within 15 minutes while the fully-automated option finalizes the process within 10 minutes.

With ongoing digital transformations and significant changes in customer needs, the digital onboarding eKYC presents significant opportunities for financial institutions, such as:

  • acquiring a new bank customer in under 15 minutes.
  • granting automatic access to personal data after customer ID authentication.
  • providing high security of sensitive personal data due to biometric tools.
  • establishing brand perception as innovative and customer-focused.

Amid the pandemic, 88% of customers expected companies to accelerate their digital initiatives, while 68% think that COVID-19 has elevated their expectations of brands’ digital capabilities.

COVID-19 has intensified the significance of every digital banking trend of 2021. The bar is set very high in terms of digital banking customer experience and digital transformation efforts as a brand new generation of post-COVID customers is emerging. Seventy-five percent of customers have tried different brands since the pandemic started, while 60% of those consumers expect to adopt new brands and stores into their post-pandemic lives and routines, according to McKinsey research.

Loyalty, empathy and emotional connection are cornerstones to bond the financial brands with their customers. Seventy-one percent of customers state that now is the time for businesses to update and upgrade how they operate, engage and contribute to society across a variety of fronts, according to Salesforce.

Almost 70% of customers expect companies to create new ways to get existing products and services, e.g., digital versions of traditionally in-person experiences in response to the pandemic, while 54% want expanded engagement methods and also modern types of products and services, according to Salesforce.This is the time when every business is reminded of why it exists and what it has to offer to its clients. In such circumstances, it’s all about finding the best ways to serve the customers and ease their daily struggles. If the customers see that the financial brand has their back, cares about them and is actively looking for more and more ways to help, the company will receive trust, loyalty and respect in such scope and intensity that would be impossible outside of the context of the crisis. So, I encourage you to view it as an opportunity to take the business to a brand new level by forming long-lasting emotional connections with the customers in the post-pandemic world.

Changing banking behavior in Pakistan

Only 21% of adult Pakistanis having a formal bank account. Although Pakistan is mainly a cash-based economy, behaviors are changing and it cannot be denied that the future is digital. Mobile and internet penetration in Pakistan is growing exponentially – more than 83 percent of our population uses cellular phones and half of them (42 percent+) are 3G/4G connection users. This shows a strong inclination of our masses towards digital services. Also, the government and other respective authorities are well aware of this trend and have continuously introduced plans and ideas to facilitate the digital shift such as Raast, PayPak, and Roshan Digital Account to name a few. It seems that the digital banking model sustaining itself in the future. However, it is imperative to provide adequate guidance and training to the masses to make them comfortable in using e-services such as digital banking. Private players in the banking sector, along with SBP, should collaborate to enhance digital accessibility for the masses.

Digital banking has been operational in Pakistan for quite some time. However, the ongoing pandemic has played a pivotal role in further shifting the mindsets of our banking customers towards going digital.

Exploring Pakistan’s Potential, conducted by A.F. Ferguson & Co. (A member of the PwC Network), re-affirmed the increasing customer inclination towards convenience & personalized banking made possible through digitization. The survey highlights that 82% of all consumers visit their physical bank branches once in a few months or only visited them once to open their accounts. Instead, 67% and 55% of the people prefer to use mobile and internet banking respectively to fulfill their banking needs. Seemingly, the immediate future of the banking industry is quite clear. Although it’s impossible to predict the future of the financial world precisely, we do know that technological innovations will shape banks’ activity. Developing a winning strategy is founded on an open attitude to upcoming changes, evolving regulations, and customer demands. A bank’s mission should be to adopt an appropriate approach towards this rapidly changing reality.

The author, Nazir Ahmed Shaikh, is a freelance columnist. He is an academician by profession and writes articles on diversified topics. He could be reached at [email protected]

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