Eruption of digital challengers in banking industry in the last couple of years exposed one of the main issues of traditional banks – large number of costly and time-consuming manual processes negatively influencing overall customer experience.
Newcomers in the banking industry made opening current accounts in a few minutes, loans approved within less than 15 minutes, fully transparent international money transfers and many more digital financial operations reality, and thus created a pressure on traditional players in terms of digitalization of their key products and back-end processes.
New regulations, such as PSD2, only multiply this pressure. Regulators aim at destroying barriers and opening of the banking industry by allowing third party providers to access customer banking data, thus providing digital challengers with one of the key assets they have been missing.
Therefore, banks should, more than ever, focus on digitalization of the key processes in order to improve customer experience and satisfaction at the same time. Otherwise, they are risking loss of customer ownership and may become simple “utility” providers.
One example of a manual and time-consuming process is certainly a typical mortgage application.
Let me describe my personal experience with this type of the process:
Finding the right property for purchase had been quite a challenge in the market with low interest rates and easy access to money, but after a few months I finally found what I was looking for. I thought that from that moment the purchase was going to be fast and easy. How wrong I was. I decided to apply for a mortgage at the bank I have been customer of for over 10 years. My main current account is over there, together with the credit card and savings accounts plus personal banker; I was therefore expecting a smooth process of mortgage application and approval.
My customer journey started on the bank’s website and continued in a branch, where I started filling in all the standard paperwork. The first surprise was that I needed to download my account statements from Internet banking and submit these as PDFs (again, customer of 10 years). I got over this and finally submitted the purchase contract, property valuation, etc. What happened after I submitted everything? Not much. Over the next 2 weeks I had no clue what was going on, I did not see any update in my Internet banking, no employee other than the mortgage advisor who received my application was able to give me a status update (rather inconvenient if this employee is unavailable due to vacation – as it happened in my case). After 2 weeks, I finally received an update. They needed some additional documentation. At this point, I was starting to be really angry but I did not want to start over the whole process at another bank, so I submitted additionally requested documents. After the submission, I was again blind. No idea about the application status due to very limited chance of contacting the right person.
In the end, my mortgage got approved, but my loyalty to the bank went down significantly. Lengthy process was one of the problems, but inability to provide sufficient overview via any of the available channels was even worse. We are living in times when people are used to having all the information available immediately at the tip of their finger and like to feel in control. Denying them this ability can have fatal consequences in terms of the customer loyalty and customer value. These customers are likely to look for better customer experience when purchasing other financial products, which will push them towards more digital-ready players.
Digitalization of the key processes not only positively influences customer experience, but also brings benefits on the cost-saving side. According to McKinsey, potential benefits are huge, especially in case of information-intensive processes where costs can be cut by up to 90% and turnaround times improved by several orders of magnitude. They provide an example of the bank which digitized its mortgage application and decision process, cutting the cost per new mortgage by 70% and slashing time of preliminary approval from several days to just one minute. McKinsey also states that 20 out of the top 30 processes accounting for 50% of banking costs (mainly related to mortgage, account opening, lending, and customer enquiries) are highly relevant for automation and consequent significant cost reduction.
At the same time, many of the costliest processes often influence customers’ first contact with the bank, e.g. in case of an account opening. Automation of these processes not only brings huge cost saving, also related to customer acquisition, but significantly reduces customer onboarding time and positively influences their customer experience from the very first interaction with the bank.
Obviously, process automation is in the heart of the digital transformation of the bank, but it is only a part of it. In order to be able to compete with the digital-ready competition and access full business value, traditional banks should get on the road of full digital transformation supported by the comprehensive digital strategy aimed at the transformation of the current business models.
We at NFG have capabilities to support banks during each step of their digital transformation journey, including the automation part discussed in this article.
Peter is Senior Digital Transformation Consultant who worked with number of clients mainly in banking, telecom and energy & utilities industry. Peter focuses on helping established players to face challenges and take opportunities brought by digital disruption. He splecializes mainly in development of digital business models and overall digital strategies. He is currently working on topics related to Open banking and Digital banking.