By Tushar Chitra, Vice President – Product Strategy & Marketing, Oracle Financial Services & Avinash Swamy, Senior Principal Product Manager, Oracle Financial Services\
There is no dearth of challenges that banks encounter in their quest for growth and profitability. Changing customer expectations, new digital competition, evolving regulations, and technology advancements all confound the business climates that banks operate in. However, a key challenge – their physical branch networks – combined with the new technologies can be leveraged not just to drive growth, but to establish competitive advantages. And the right core banking system can play a pivotal role in helping a bank do so.
Branch Overheads to a Phygital Experience
The rapid adoption of digital channels by customers and increasing competition from digital firms requires banks to invest heavily in digital channels. Such spending is happening in the context of growing overheads of their branch networks. However, branches still offer a bank the ability to leverage the complementary strengths of both physical and digital channels to provide better customer engagement and experience.
Enhanced branch interactions where a customer is instantly recognized and engaged with relevant information and services can significantly improve customer experiences and complement the capabilities of digital channels. Consequently, the right mix of digital channels and enhanced physical branches can help a bank drive a seamless and comprehensive ‘phygital’ customer experience. Such customer experiences emphasize ease of use, convenience, speed, and support.
The right core banking system can help a bank adopt an optimum phygital strategy. Systems integrated with next-generation capabilities like biometrics and computer vision can help recognize customers in branches. Technology can also assist staff with the right information to help them offer unparalleled personalized interaction and services that can surpass that of competitors, both incumbent and digital.
Data Costs to Data Value
The banking industry is awash with data and maintaining it has often been viewed as an unavoidable cost. Much of this account, service, and transaction data has typically been under-utilized, used primarily for record maintenance, and regulatory reporting. Business intelligence capabilities have also struggled to utilize this data to generate actionable insights efficiently.
Artificial Intelligence and Machine Learning offer a bank the ability to tap these data sources to generate predictions and insights with improved accuracy. A bank can now maximize the business and monetary value of previously under-utilized data sets. These data can generate deep insights on customers and then roll-out personalized services and offerings across phygital channels.
Core banking systems with embedded machine learning capabilities allow direct access to data to generate predictions and insights. Existing data structures can be leveraged, ensuring there is a minimal need for re-alignment and enabling an accelerated roll-out of machine learning capabilities. The co-location of machine learning algorithms and data also enables an industrialized generation of insights at scale to drive the unlocking of new value from data.
Financial Inclusion Directives to New Profitable Segments
In most emerging markets and many developed markets, financial inclusion and lending to small enterprises continue to be primary policy objectives. This is in line as governments seek to distribute economic benefits equitably.
While many banks view these directives as an additional overhead, they also present an opportunity for a bank to target new customer segments. The key to driving success in these new segments is maintaining healthy profitability despite lower margins.
A core banking system with the right capabilities holds the key for a bank to profitably target these new customer segments. The capability to create low-cost products and services that comply with regulatory directives can help a bank efficiently leverage phygital channels. Banks can then quickly go-to-market to create opportunities from financial inclusion. Systems that include out-of-the-box functionality for specialized business verticals like micro-finance can help a bank rapidly leverage specialized lending opportunities and do so quickly and profitably.
Open Banking Compliance to New Revenue Streams
Evolving Open Banking regulations across the globe increasingly require banks, with the consent of their customers, to share data securely with third parties. The essence of Open Banking, however, goes far beyond data sharing with the overarching objective to enable new financial services as well as increase transparency and convenience to customers.
Consequently, partnerships and connected ecosystems are fast becoming a reality. These ecosystems feature banks, FinTechs, and other digital firms sharing data and building new business models. These partnerships and ecosystems offer a bank the ability to explore untapped customer touch-points in the financial and adjacent value chains as well as create new services and revenue streams. A bank’s existing branch network also offers a well-established channel that can be shared and monetized with partner firms.
The capability of a core banking system that facilitates the creation and management of data and services through APIs securely, transparently, and efficiently is essential for a bank. It is also crucial that the system supports global standards and protocols which enable quick, seamless, and secure integration with systems of partner firms.
The Right Core
The right core banking system with capabilities like biometrics, machine learning, APIs, and specific business functionalities can help a bank turn its physical challenges into phygital opportunities. It can help a bank establish competitive advantages against both incumbents as well as digital competitors through new insights, experiences, markets, and business models.
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