She walked in like a true princess on that sunny day, in her flowing white dress. With a tiara draped on her pristinely coiffed hair, her contoured and well-made face betrayed her nerves which bulked up in her smile. One can readily spot an admixture of excitement and anxiety over the unknown once she commits a forever to a better-half in the presence of loved ones. Right at the altar was her husband to be with his chiseled abs clearly defined in his buttoned double-breasted suit, sheepishly smiling and holding back some few sobs upon seeing his beautiful bride. At this point, cold feet anyone? Walking down the aisle to swear your forever commitment and dedication to a person is certainly the highest form of trust and a huge gamble as everyone goes down the aisle with half the story hidden regardless of the number of years playing ‘knowing me knowing you’.
The ‘nuptial vows’ in Banking
The wind of change blowing across the world transcends a pandemic reaction to an insurmountable challenge. Organizations are scaling the wall of mechanical and bland regurgitation of the status quo and embracing rather cautiously a new love. The not too rare occurrence means jilting conservative and traditional ways of attending to business and life. Hitherto, there was rarity in making such life changing decision as there wasn’t any inclination and external interest to topple the dominant theme of workplace ethics. Wedding bands of conformity have gone full circle, and guess what, the mundane is starting to strike a raw nerve quite often. Banks are expressly beginning to rethink interaction and distribution channels and are by every means maximizing the opportunities presented by the pandemic to implement a technological necessity.
Mincing no words, the court battle rages on in the divorce settlement between traditional banking and online banking. Most banking firms in Africa have been held hostage and practically trapped in a bubble of convenience and ‘utopia’ in this season of banking unrest, sinking them in a quagmire of stunted growth. This Stockholm syndrome characterizes firms who have an inexplicable affinity to a hurting and sinister subject. Regrettably, the soul ties of confusion, relative fear of the unknown and ‘what ifs and buts’ cloud the judgments of such banks attached to sentimentalities and cliché trinkets of loyalty. The banking industry has rapidly evolved in the past few decades. They have become global institutions, operating in multiple countries around the world—and, perhaps more importantly, online.
Physical distancing versus social distancing
Undoubtedly, the lockdown period was the recess the world needed in reassessing its protracted direction when it comes to new and improved ways of doing things. The culture of banking changed faces in a long blink of an eye which is painfully overdue. Currently, physical distancing has gained a new perspective with social distancing galvanizing a change in attitudes of customers who have strong inclination to not just convenience and cost effectiveness but time management. Bottom line is, the lines of physical and social distancing have been blurred out by the technological response of online transactions. A 2016 Global Consumer Banking Survey conducted gauged 55,000 consumers in 32 countries. 60% revealed they would want to visit a physical branch or speak with a real person in order to purchase a new financial product or ask for advice. Traditional banks, with their focus on in-person customer service, may prove more trustworthy than banks that lack brick-and-mortar operations. This is especially the case when the consumer is opening an account.
In order to stay competitive and ensure their customers are satisfied, most traditional banks have incorporated internet banking in their services. Online portals allow these customers to view their balances, transfer money, open new accounts, and even apply for a mortgage— all of which is available round the clock unlike physical branches. Essentially, most banks are losing footprints at various branches as customers have taken a strong liking to manage their money, have access to credit, and deposit their money in a secure manner and done remotely and electronically. Also, online customer service, including e-mail and chat and video call, are overtaking phone calls and visits to a bank branch. According to McKinsey’s Africa Consumer Sentiment Survey of May 8, 2020, “customers have reported a 30 to 40 percent increase in their usage of online banking, mobile banking and mobile payments in recent weeks. This is linked to the imperative of physical distancing. Going forward, once ‘normal life’ resumes, 30 to 40 percent of consumers expect to increase their use of digital channels, while 30 percent expect to reduce their branch visits.”
Indeed, there has been significant change in branch usage as a result of physical distancing. In March 2020, McKinsey posited that, “25 percent of branches globally were closed, and 15 percent remained shuttered by May. However, even before the crisis, branch contribution to core banking unit sales had fallen from 75 percent in 2015 to 55 percent in 2019 (although average sales value remains higher in the branch than other channels). During this same period, the number of branches declined by 18 percent, and branch staff by 16 percent. A closer analysis, however, reveals two distinct groups: banks that made bold reductions and banks that moved cautiously. A bold transformation of the branch network delivered four times higher productivity gains than incremental adjustments and produced a 23 percent leaner network”.
Watershed moment in online transaction
Digital banking is of utmost importance to modern consumers and the next face of retail banking and a general acceptance and incorporation into respective banks operations and activities will spare banks needless problems, debts and irreparable damage to their firms. Retail banking has largely transitioned from a crossroad where indecisiveness was a harbinger of shrewdness to a more intentional habit of satisfying a growing number of tech savvy customers. In the same survey conducted by McKinsey, 66% of consumers said a great digital presence was an important characteristic of their chosen bank. A majority of Europeans are proving it, with Eurostat data showing that 59% of European internet users bank online.
Candidly, traditional banking organizations are crumbling from the inside and coughing up the consequence of limited footprints in the banking hall, which are gradually transmuting into ghost towns. Mckinsey states, “to stay competitive and ensure their customers are satisfied, most traditional banks have incorporated internet banking in their services. Online portals allow customers to view their balances, transfer money, open new accounts, and even apply for a mortgage— all of which is available 24 hours a day, seven days a week, unlike physical branches. Online customer service, including e-mail and chat and video call, are overtaking phone calls and visits to a bank branch”.
Banks who look back at this point will be crystallized in a retro captured shot as mobile banking has risen as well, “with one report showing that 47% of global consumers did so in 2016. Banking apps are skyrocketing in usage as well, allowing consumers to make fast digital payments at stores, events, and online”.
The double sided coin of online comes at its price like most ingenuities. The surge of digital banking has also created a surge in cybercrimes, as online banking opens up a new avenue for criminals. “If a customer accesses his or her banking information over an unsecured network, anyone could listen in and access the log-in credentials or other information. E-mail phishing attempts may convince the less digitally savvy to click links that appear to originate from the bank itself. Banks offering online banking products can secure their own sites and apps, but they must also inform their customers how to use them safely”.
That notwithstanding, a new category of banks has emerged, banks that operate only online, also called direct banks or branchless banks. Direct banks offer all the functionality of a bank, but without any local branches. They often offer more attractive rates, but fewer financial products as well as the face-to-face customer service that global consumers still crave.
Extinction of fossil banks
Evolve or die. Evolution supports change with strong aversion to conservatism. Accessibility is a significant component in online banking, and so entrenched traditional banking will be lacking in online banking capabilities. Subsequently, customers will have reduced access to their own banking information outside of business hours; when traveling, they may not be able to find a branch or ATM without high fees.
As digital financial services evolve, banks will face mounting competition from three main nonbanking competitors, “(i) telcos that are expanding their activities into payments (via mobile finance and beyond); (ii) major global technology players, such as Alibaba and Tencent, which have already developed a strong activity in financial services outside Africa and who are now showing increasing interest in the continent; and (iii) digital attackers such as FinTechs, which have made inroads both in the consumer services and in corporate services spaces . This competition from non-banking players will be enabled by regulation and technology: for example, regulations issued in Morocco and Nigeria in 2018 are enabling payment-service providers, mostly telcos, to provide payment services”.
COVID-19 has accelerated the shift to digital in retail banking. McKinsey latest data suggests that, industry leaders are driving digital log-in growth at five times the rate of slow adopters. “It also indicates that consumers intend to sustain their new digital behaviors and visit branches less often following the pandemic. Banks should reshape their distribution models to thrive in a post-COVID-19 world, as transformation becomes an immediate imperative, not a long-term option. Due to the pace of disruption, what was previously a gap between leaders and slow adopters may become the gap between average and poor performers”.
Banks that do not embrace mobile finance and integrate it seamlessly into their banking activity face the threat of losing market share to these nonbanking competitors. To adapt successfully to the long-term shift to digital, banks can accelerate their digital transformation by prioritizing milestones such as the coverage of 100 percent of simple sales and servicing with digital, and especially mobile, solutions—in other words, rapidly digitize the customer journey. Also, implement mature digital sales to match assisted channels to close the gap in performance with branches and call centers in terms of conversion rates, cross-selling, and ticket sizes. Similarly, banks must simplify the consumer and commercial product catalogue to broaden the scope of “simple” (to include, for example, no-frills investment and lending propositions) and make the digital channel easier to navigate. More than ever before, they need to raise the bar on cyber security and technological resilience, including having zero tolerance for outages of ATMs or mobile platforms.
Traditional banking certainly has its allure but it has outlived its purpose particularly when juxtaposed to online retail banking. The schadenfreude of the pandemic in seeing things fall apart can only be foiled when innovators take over from conformers. A resonating belief is that, banking and financial institution will realize the indispensable position they occupy in the world’s economy and develop a clear view on the target role and competitive differentiation of online channel, integrating customer preferences and economics and leveraging on technology to bolster retail banking.