By Roshan Navendra, Chief Customer Architect, Oracle
Just a few years ago, putting your savings into an entirely online platform would be something unfathomable. Today, however, the idea of doing so is not at all impractical, with providers offering convenience and competitive returns for their customers. ASEAN nations have also begun easing the barriers to obtaining a banking license, showing their commitment to driving financial innovation and competition.
Banking – traditionally an industry requiring large capital for any who wish to tread into the space – has been hit by a wave of disruption, buoyed by mass smartphone adoption, increased connectivity, and heavy investment into data that significantly lower barriers of entry for digital disruptors. Combined with many high-profile inquiries into the performance and behaviours of incumbents, it is unsurprising that consumers are increasingly paying more attention to these pure-digital alternatives.
A yet unrealised disruption also comes from highly prolific brands outside the industry bringing their established credibility to shore up the gap in trust. Imagine a fully-fledged virtual bank by a global telco, or supermarket, or technology company. A trusted brand with extensive roots to demonstrate resilience while delivering a seamless and engaging banking solution is surely a strong contender.
On the other hand, incumbent banks are not taking these challenges lightly. They recognise the draw of virtual banks and have taken to launching such platforms of their own. For instance, the National Australia Bank launched UBank, an online platform that offers all the capabilities of a virtual bank – visibly backed by the trust and image of their incumbent counterpart to capture the wallets of customers looking for the best of both worlds.
If your strategy aspires to provide such an offer to the market, it is the perfect time to get started, right? Well, it is not that easy, and if you do, there is a narrow pathway to success.
With the multitude of banking options, consumers are now spoilt for choice. Legacy banks face the issue of siloed and scattered data across the organisation leading to fractured processes that consequently result in mistakes, confusion, and frustration for customers. Furthermore, with incumbent banks being typically associated with higher fees and lower returns, consumers are increasingly concerned with the financial returns and services they receive, and are now seeking out alternatives for simplicity, convenience, and greater returns.
In response, smaller players are coming up with new value propositions. Simple, nimble, and clean while offering personalised services, these virtual banks propose quick fixes to the growing frustration towards incumbents, and often hero that in their go-to-market messaging, whether it be social responsibility, simple banking, loyalty to existing customers, or reduced fees.
Although they are attractive propositions, the conundrum customers now face is one of security versus experience. A consumer will trust a bank to hold their hard-earned money without expecting much in return other than secure storage, and will typically accept the fee for that service. When this trust degrades beyond a point, the counter-parties involved will dissolve that relationship and seek out alternatives. The conditions for a new relationship at its surface, may be 'scored' on visible tangibles such as fees or interest rates, but this can only occur once the baseline level of trust and security is established.
Therein lies the problem for any pure-play virtual bank. As a fresh entrant, they may have attractive visuals with competitive interest rates, a QR code to sign up in just a few clicks with your phone, but while that may incite experimentation with a week’s worth of coffee bills, being trusted with a customer’s home deposit is an entirely different story. Even as customer acquisition is strong, deep and enduring customer relationships are not. Attrition, or worse, customer apathy is a significant obstacle to the sustainability of virtual banks.
Given this, the challenge for them is to strike a careful balance between addressing issues customers are facing with legacy banks while providing a sense of security and trust. Achieving this will project that virtual banks are reliable banking partners that can withstand uncertainty.
The ultimate goal for budding virtual banks – which is achieving long-term sustainability – requires them to look beyond customer acquisition. Acquiring customers is a great starting point but retaining and getting them to invest presents a whole different set of challenges.
Achieving this involves nailing down five key aspects:
Forge strong partnerships
Fostering the necessary confidence can be greatly accelerated by partnering with brands that customers already trust. This will nudge them beyond a superficial experimentation phase, to entrusting virtual banks with their financial well-being. A pure-play virtual bank that does not have an eye to be offered via a trusted name, partner with a trusted name, or perhaps eventually be purchased by a trusted name, will quickly run out of runway before it can establish itself.
Relentlessly deepen customer relationships
Noting the tendency to attract ‘experimenters’, virtual banks must place as much, if not more focus on cultivating relationships with existing customers. Clever monitoring of customer interactions and behaviour will allow them to engage effectively and guide them beyond onboarding into deeper relationships.
Careful attention to customer apathy can address the high levels of attrition that virtual banks face in their first few years of brand building. Cultivate relationships with customers that engage regularly, and not just for small transactions, but aim to help them achieve their financial goals.
Define a roadmap of pain points to address
Knowing the why and what of your solution and addressing them systematically will allow it to strike a balance between going to market too early without a full-fledged plan and reaching the market too late, nearing the end of their runway of capital.
This allows virtual banks to address the minimum number of pain points to draw a customer’s attention, while providing a direction to maintain growth and interest. Such examples would be solving financial pain points around day-to-day saving goals, home purchase, or putting together a plan for a customer’s retirement savings. Tackling these propositions together is not wise, rather, being selective about your roadmap of pain points to address, and systematically execute each milestone to quickly generate sustainable revenue and growth.
Create a robust backend infrastructure
It is considerably easy to develop an attractive acquisition experience on a smartphone, however, this is only a small fraction of operating as a financial services provider sustainably. Virtual banks must ruthlessly offload anything that is non-core to their differentiated value proposition, such as financial and regulatory reporting, human resources management or case management. In doing so, they must also ensure that it does not create silos or complexities that distract them from their strategy.
By taking non-differentiating aspects out of the picture, virtual banks can focus more time, energy, and resources into innovation, improving the overall customer journey and differentiating themselves from competitors.
Value, cherish and govern your data
To fully harness the value of data, virtual banks must ensure that all data is accessible, clean, and trustworthy. This reduces friction for customers when using virtual banks as everything about them is presented through one transparent source. Scattered data slows down this process and runs the risk of becoming a pain point.
Without a clear data strategy to start, banks will quickly lose control of their data, ultimately eroding what is predicted to be the most useful and valuable asset in the digital era. Monitoring and acting on this data will drive excellence in many dimensions of offering, from regulatory and tax reporting to pricing, product development, and engaging and deepening customer relationships.
The region’s incumbent banking industry is at a tipping point of transformation and keeping pace, requires not just adopting, but by embracing cutting edge technology.
Entrants should take a systematic approach in addressing customer pain points, to create value propositions that are not solely based on price or customer frustration with incumbents. They should partner sensibly with trustworthy brands and solution providers to offload commoditised business functions and zero in on their customer value proposition. Once in market, focus on building deep relationships and retaining customers to build a sustainable balance sheet.
It has never been a better time to approach the runway, however, digital entrants must make sure they take-off by leveraging the best advantage given their limited capital and resources.
Join Michael Araneta, Associate Vice President, IDC Financial Insights, Steve Shipley, Adjunct CIO, IDC Financial Insights and Michael Connell, Head of Cloud Enterprise Architects, ASEAN Head of Architecture and Industry Strategy, ASEAN & GC at Oracle as they discuss the new market dynamics in banking: upheavals in the industry, the different approaches, mindsets and value propositions of challenger banks versus traditional banks in their strategies for success.