What to expect when pursuing digital transformation for your retail bank

Published May 5, 2022, 11:18 AM

by MB Business

All financial institutions will eventually find themselves needing to readjust to the realities of outside events and internal pressures, and retail banks are no exception. Today, retail banks and other financial institutions are faced with a choice: undergo digital banking transformation or become irrelevant. While the choice is obvious, the implications are not always clear. 

Below are some of the things a retail bank must expect when they digitize their business models.

A new role for physical branches

As the term implies, any digital banking transformation will mean that the role of physical branches will be de-emphasized. This is seemingly emphasized by the ongoing trend of brick-and-mortar bank branches closing their doors for good. However, this does not mean that there will no longer be a use for physical locations.

In a way, retail banks will undergo similar changes as the retail industry, where there was a major but not complete move from physical in-store customer experiences to virtual ones. There may be fewer physical retail bank branches in the future, but they will still play a key role in developing customer relationships. 

Physical bank locations can take the role of showrooms or customer education centers that can teach customers how to use banking apps or give them special financial services that are best explained in person. While regular transactions may still be done in these branches, their primary purpose may shift to provide customers with an elevated level of service over the digital alternatives.

Competition through better mobile apps

Given that the digital space will be where retail banks are most likely to do the most business, the user experience offered by banking apps will become critical. The ease of use and fluidity of mobile and desktop apps will become an important factor in determining whether or not customers choose to stay with a specific bank. Retail banks that have clunky, unsafe, or buggy apps will not be able to retain their customer’s trust and are likely to lose big in the future.

A need to leverage big data

Perhaps the biggest benefit of digital banking transformation is that retail banks can more easily gather data and collect insights about customer behavior. This gives retail banks the means to deliver better products and services while also allowing them to identify opportunities and risks in the market. It will also become possible to offer bespoke services and perks to select customers at an unprecedented scale.

More investment in machine learning and AI

Coming off the previous point, the sheer amount of data that could be gathered related to customer behavior as well as internal processes may become too much for a limited number of human analysts and managers to handle. Larger financial institutions are already turning to artificial intelligence, machine learning, and other types of automation technologies as a way to reduce this massive information overload.

Investments in these areas can be a gamechanger for smaller retail banks as well. With AI doing most of the work in internal process engineering, market analysis, and many other areas, smaller retail banks could conceivably expand their capacity without hiring more people. It can potentially put smaller players on a more even footing with larger institutions, as these automation investments may work advantageously with the better agility of most smaller organizations.

Understanding the trade-offs

One of the most difficult things about digitizing banking services is understanding what the institution has to leave behind. Old processes may have to be done away with, and, unfortunately, some employees may not have relevant skills in the institution’s future. In some cases, a retail bank may also have to consider whether or not they may lose key customers in the process of digitization. The trade-offs of digital transformation will be different for every organization and minimizing these will require the decision-makers to plan ahead and make very careful choices.

A more client-centered approach

As with virtually every other retail business, retail banks will have to contend with a world where customers now expect very high levels of service. The more general trend towards digitization means that retail banks can lose clients to other banks that may not even be in the same geographical area, something that was a huge advantage years ago but is far less relevant today. This means they may have to work harder to earn and keep every customer than they did in the past.

Emphasizing a new set of skills in the workforce

It’s not just the apps and hardware that have to change, but the skillsets of the people using these assets as well. It will be very difficult for retail banks to succeed without a conscientious shift in their human resource priorities. Even modestly equipped workforces that are more comfortable with process automation, using machine learning, and understanding virtual processes will have a distinct advantage over ones that have up-to-date technology but lack the mindset needed to maximize them.

The digitization of banking services has been going on for years. However, the rise of fully digital banks and a shift in customer behavior means that traditional retail banks can no longer rely on their locations to make them competitive. By understanding what lies ahead, retail banks can be better prepared for their inevitable digital futures.