Technology’s influence on the banking sector is becoming increasingly important. Despite this, commercial banks are far behind retail banks in terms of innovation, way of working and digitalisation. The clock is ticking; if the sector doesn’t change it’s ways, choosing to remain process-driven rather than client-driven, the bank will turn itself into a burning platform.

Even though traditional players are still dominating the banking sector, the world is changing at a faster pace than ever. The new payment law (PSD2) and changes in the banking sector have opened the market for ‘new’ players. Google starts to develop payment initiatives and challenger banks are winning market shares.

Fintechs are taking over the profitable parts of the operation. If this trend continues, commercial banks will have to be careful that they do not become merely a utility provider.

Profit margins have been shrinking

If commercial banks want to maintain their market position, they must act quickly. At least if they want to create a transformation. Whilst the retail branch digitalized, embraced new ways of working, and innovated in order to increase customer satisfaction, the business sector remained stuck in their traditional ways. As a result, the profit margins have been shrinking whilst the costs have been rising due to manual work, as well as things that must be checked twice by different departments. These laborious processes and long lead times lead to a decrease not only in customer satisfaction, but also employee satisfaction.

People often think that the sector has made a lot of progress in the realm of digitalization. Paper forms have been replaced for digital versions and customers can do business via an app. However, merely putting a product online doesn’t produce the same change and results as a renewed digital strategy wherein the customer is central. Although it is a good start, they are beginning a long, but necessary digitalization process.

Commercial banks must begin conducting in-depth customer journeys

Fintechs have a head start on traditional banks because they put the customer’s needs first like no other. They optimize their efficiency and customer experience using Artificial Intelligence, machine learning and data analytics. This results in a rise in customer satisfaction, which gives them a lead in the market.

For this reason, commercial banks must begin conducting in-depth customer journeys in order to learn about (changing) customer needs and expectations. Mid and large corporate clients do not only want to be able to take care of business digitally; above all they want to experience more ease, speed, and great customer service at their commercial bank.

Moreover, a major change to organization and culture is needed within the commercial banks. The silos within which they operate must be breached so that the customer is central rather than their internal processes. This change will unquestionably be met with much resistance, partially stemming from the conservative business culture.

Digital transformation is never complete

It is also often said that the digital transformation is complete. That is a misconception: digital transformation is never complete; there is no organization that is future-proof.  The lack of complete or organized data is often the reason for not following through on real digital transformation.

This leads to businesses often working with so-called ‘fun facts’ rather than real, actionable results. Various organizations organize innovation labs that are separate from the business. The result is that no value gets added, because current problems are not identified, addressed, and solved.

The success of digital transformation doesn’t depend on the digitalization of processes, but on the digitalization of the optimization of the customers’ expectations. An organization can only distinguish itself when optimization comes first. It is time that commercial banks begin to seriously take on this challenge.

Angelique Buist

Author Angelique Buist

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