Banking on digital innovation for growth

PHOTO: Banking on digital innovation for growth

IN the last decade, the banking industry has seen "digital" evolve from a basic online banking model to a broad, rich set of features and capabilities which have revolutionised the banking experience. Previously, banking used to be an isolated and location-bound activity, but now it has become an integrated part of our lives.

We transact and check our balance everywhere through our mobile devices, receive location-based offers linked to our credit card usage and give immediate feedback about banking services through Twitter or other social media.

This shift to digital channels and change in customer behaviour has transformed business models and opened up new opportunities for banks to engage customers. Compounded by the economic climate, increased regulatory intervention and competitive challenges, banks are now being forced to embrace digital innovation as the new path to growth.

Customer engagement

While banks are continuously innovating their eco-system, digital customers are becoming more demanding, requiring banks to stay ahead of the curve.

As part of PwC's global customer research, we have looked at the digital behaviour and sentiment of Singapore banking customers and have found that they are very engaged digitally. We observed this in the form of immediate and high-volume responses to incidents in online forums and blogs.

We also found that customers tend to have online discussions on a wide variety of banking-related topics and express very strong opinions.

An interesting point to note is that even though the platform for discussion is a digital one, more than 75 per cent of the discussion topics are related to banking products, with credit cards discussed intensively.

Furthermore, with all the Singapore banks looking to expand regionally, it's vital for them to understand that the Asean region has the highest volume growth in Internet usage globally.

For instance, Indonesia saw its Internet population grow by 37 million just within the last three years.

For Singapore banks, this represents an excellent opportunity to capture the digital imperative. The ability to engage with customers globally, directly and personally online and in real time allows banks to collate feedback about their services, and make changes or enhancements in areas of concern.

Looking specifically at Singapore banks, we notice that digital customer advocacy for Singapore banks is on the low to medium side compared to global best practices. European Banks such as ING Direct and Metrobank, which provide a truly differentiated customer experience, achieve a significantly higher positive sentiment compared to the local and international banks operating here.

Singapore banks will have to work on improving their customer sentiment or risk losing market share to international competitors.

Another threat to the banks here in Singapore is the emergence of new entrants, such as PayPal, which have a very comprehensive digital offering and a high customer advocacy. Recently, PayPal announced its version of the digital wallet and is making inroads into the traditional banking domain.

Building on their formidable customer base and strong reputation, companies such as PayPal pose a significant threat to the traditional banks.

The chart above illustrates the digital customer advocacy score of Singapore banks versus competition.

To innovate in the digital channels and become truly innovative, banks have to offer a new digital feature set that has: Advanced user-experience through interactive, game-like applications where the boundaries between the real and the virtual merge, and bring data to life through rich visualisations. The introduction of online personal financial management is a good example of this: Financial planners provide customers with advanced online tools to do their own calculations for retirement, budget their spending and track their investments. Advanced services through mobile devices and networks, such as location-based offers and the ability to access banking services from anywhere, including access through partners such as property sites. Integrated social media and collaboration tools, empowering customers and employees, and moving control of the "brand message" from businesses to consumers. Innovations in digital analytics and predictive models, driving deeper insight into customers' behaviour and enabling highly targeted and relevant offers through digital media. New channel integration technologies, enabling a more seamless end-to-end experience for customers with their bank.

Our assessment of the Singapore market is that there has been a very strong effort from banks to catch up with global best practices and/or implement leading edge capabilities.

Good examples are the Standard Chartered Breeze application which is an internationally acclaimed example of best practice mobile banking, and OCBC's recent enhancements to the online user experience.

However, we do see capabilities that are not yet truly integrated and consistent and a lack of ground-breaking innovations strong enough to entice customers to switch banks and allow banks to capture market share.

Case for change

The implication for banks is that as business models are transformed by the shift to digital channels, it opens up new opportunities for engaging and interacting with customers to build relationships and grow revenues by charging customers for digital services that they value.

With the battle lines being redrawn among banks, the winning bank should focus on taking steps to develop deeper relationships with their customers.

Focusing on gaining trust, building engagement and creating value for the consumer should be the guiding principles for doing this.

Our analysis has shown that there is a significant opportunity for Singapore banks to innovate in the digital channels and, for example, improve online sales.

Based on customer behaviour, online engagement and sentiment analysis, and the digital improvement possibilities, we estimate that on average a 20 to 30-fold increase in digital sales is possible for banks in Singapore. Furthermore, a best in class digital banking platform can help regional expansion and capture market share abroad.

What's next?

For Singapore banks, now is the time to make a strategic investment in digital and evolve from the traditional banking models. Important steps in achieving digital leadership are development of a vision and strategy and select partners that can help to innovate around the customer experience.

It is more important now than ever to achieve first-mover advantage.

We believe that the perfect storm banks are facing today will produce some clear winners.

Successful players will be those that recognise the changing eco-system and set out a clear digital vision for securing customer relationship primacy.

Others will see the challenging environment of today as a distraction at best and continue persistently with old ways and methods, eroding value in the process by disengaging the customers.

The writer is director, Customer Impact & Growth, in the Financial Services Practice at PwC LLP Singapore

This article was first published inĀ The Business Times.