What are the main challenges for a traditional retail bank?

Hi Marieta, 

I agree with Milena's suggestions. I can also add:

• Reduce costs for the end-customer (freemium and premium products). The Heads in a bank need to think about ways to win a customer with a service, rather than send the customer away because of fees. 

• Brainstorm on all diversified channels of revenue. One is - selling data with the consent of the Customer. Another is - analysing big data, especially for information that is complex and more qualitative, rather than quantitative and understanding the customer needs, willingness to pay for and reasons.

• Introduce contract automation to provide faster documents to the client,automated decision tree softwares to be able and point the customer at the right product needed based on the answers of the questionnaire, RPA for repetitive and repeating tasks and AI to save time for analysing the information you have gathered from your customers.

Christian

I understand your contact's main concern is the competition from neobanks (a.s.a. virtual banks, digital, challenger or disruptor banks). This includes partial competition from fintechs without a full banking license (e.g. payment apps and wallets who only do payments but no deposits or lending).

In the short term his best solution is to give up. Serious: he just cannot beat them on speed, flexibility, low cost or customer effort (which is UX but not CX). Matching those and hoping to beat them is a massive transformation that will take a long time, although I would encourage every incumbent bank to embark on it.

To resist them in the short term, the best a retail incumbent can do is asymmetrical competitive positioning, i.e. differentiate in areas where traditional banking still has (some) advantages. Those can be the physical ubiquity with a branch network, the full, wider range of services not available (for now) from the neobanks, and perhaps superior CX through in-person human interaction (provided the customer-facing staff are properly selected for inborn empathy and servitude, properly trained, and properly motivated to provide such superior experiences. Now most of them are none of those things.)

In a 6-24 month timeframe the above differentiators can be dusted and polished, and most important: articulated convincingly in effective marketing communications across all relevant channels, to all relevant segments. The last keyword is particularly important: this short-term strategy requires careful retargeting to customers and prospects, who value the full service, personal touch and physical presence - and not (!) to those who only compare prices and technical specifications.

In this period it would be suicidal not to undertake a radical long-term transformation towards becoming... a neobank, effectively. This requires honing a strategy, re-designing from scratch new business model(s) and TOM (target operating model), all respective processes and replatforming to a modern cloud-based architecture. It also involves organisation redesign, people optimisation and re-skilling, and minimising physical assets (e.g. branches, head offices, operations back offices, data centres). Massive effort which takes balls, but those scared to start now are guaranteed to disappear in 5-10 years.

My experience is mostly this side of Vienna, but I get a sense that East European banks (and general business culture) are more receptive to frequent, rapid and significant changes, probably because of less historic baggage. Steeped in centuries of tradition, Western banks tend to defend the status quo or simply bury their heads in the sand and pretend change is not happening. Which is an opportunity for your contact and I wish him best of luck!

The banking sector is undergoing a radical transformation in last years. The shifts include changing business models, disruptive technologies, FinTechs, and compliance pressures. The emergence of non-bank startups, which is also referred to as FinTechs, is altering the competitive landscape in the banking industry. It has forced traditional institutions to reorganize the way they conduct business

As information breaches become more frequent and privacy concerns increase, compliance and regulatory necessities become more limiting as a result. On top of that client’s demands have been evolving. Many consumers seek to be met with round-the-clock personalized services.

These financial problems can be corrected by the very innovation, causing disruption. But, the transition from a legacy system of offering service to modern solutions has never been an easy task.

1.Increasing expectations -Today’s clients are savvier, smarter, and more informed. They expect a high degree of convenience and personalisation out of their financial service experience. The banking system should figure out techniques to satisfy younger and older generations of banking clients at the same time. Satisfied clients are critical to a business. Banks will have to keep all clients happy, therefore maintaining and attracting more investors.

2. Shift in Culture - Banks and financial organisations must promote a culture filled with technology. Innovation is leveraged to optimise the existing procedures and processes for maximum efficiency. This cultural transition towards an innovative-first attitude is a reflection of the greater industry-broad acceptance of digital transformation, must promote a culture filled with technology. Innovation is leveraged to optimise the existing procedures and processes for maximum efficiency. This cultural transition towards an innovative-first attitude is a reflection of the greater industry-broad acceptance of digital transformation.

3. Increased Competition -The financial industry is facing threats that target the most crucial areas of the service. These threats have forced many financial organizations to go after partnerships as a stop-gap precaution. To sustain a competitive edge, credit unions and traditional banks need to devise substantial measures that will counter threats to their service.

4. Altering Business Models -The cost that is linked with compliance management is among the numerous financial service challenges forcing banking institutions to alter the manner they conduct business. The elevated cost of capital integrated with unrelenting low-interest rates, decreased proprietary trading, and decreasing return on equity are all pressurizing traditional source’s financial profitability. But, the shareholder prospects remain unwavering.

5. Constant and Consistent Innovations - Innovation can be termed as a critical differentiator that separates the "chaff from the wheat". Innovation is derived from insights and data analytics, through continuous client interaction, insights are discovered. However, insights without action are ineffective. The banking industry must prepare to pivot when appropriate to address client demands and also better customer experience.

As we have very good track record in Tailor Fit Artificial Intelligence solutions in banking system in Russia, bringing added value and  significant competitive advantage to our customers, will be happy to support further :)