“We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.” – Klaus Schwab, Founder and Executive Chairman, World Economic Forum Geneva.
Some finance services executives are already preparing for a future in which technology surpasses humanity, and humans answer to machines. This revolution is now causing an emotional impact of the banking staff: The feeling is mixed – Optimism + Pessimism, culminating in a Fear of the Unknown. With regards to its effect on the banking industry, bank executives are strategizing on changes that will greatly impact how they conduct business today and in the future.
Virtually all financial institutions in the world are focused on making their organization ‘more digital’. From overhauling back office operations to leveraging new technologies to increasing customer engagement, the requirement to understand and respond to the needs of the digital consumer has never been greater. This is no mean task. In most cases, it requires a large-scale change that typically takes years to accomplish. It would include new technologies, strategies, processes, skill sets and a complete disruption of legacy organizational structures — moving from a product focus to a consumer focus. That is why digital banking and its attendant artificial intelligence or big data analytics is described as “disruptive”.
Digital Banking Transformation
The waves of change from the digital world are dramatically reshaping customer behaviour and expectations in banking. In the sophisticated financial world, more than half of consumers access their savings accounts primarily through digital channels. In addition, traditional banks face fresh competition from unexpected new sources. For example, financial technology, or fintech, start-ups are using software to disrupt nearly every step of the financial-services value chain—including payments, loans, trade finance, and foreign exchange—with new offerings that fulfill unmet client needs.
Can you imagine the statistics that show that mobile banking transactions in Ghana now surpass that of cheque payments! But at what costs? I send just Ghc100 to a friend and presto, the charge is 1%! It is even more costly with the mobile interoperability systems. I can send money in minutes to anybody. How convenient and easy! However, the fees are killing, especially where there does not seem to be a threshold to the fees charged!
Leading financial institutions are struggling to find the right defensive and offensive moves to simultaneously focus on the client experience and reinvent business processes. Most are investing in digital capabilities but often not aggressively enough. Collaboration with fintechs and telecoms have resulted in mobile apps being installed on clients’ phones. Sadly, these are not compulsory so clients can easily do their payments without having a bank account! The next question therefore is: Are bank accounts really necessary?
Before I continue, let us observe that throughout the world, there has been a new buzzword in financial services – Artificial Intelligence or (AI). A few years ago, this word seemed like “Greek” to many people, even bankers. Right now, it seems it is the only key to success in banking! Is it really? Let us find out.
What is Artificial Intelligence?
The emergence of artificial intelligence (AI) has played a key part in ushering in a Fourth Industrial Revolution. According to the World Economic Forum, “it is disrupting almost every industry in every country.” Artificial intelligence is a conglomeration of concepts and technologies that mean different things to different people. For example, self-driving cars, robots that impersonate humans, machine learning, and more – and its applications are everywhere you look. Another definition for AI looks something like this, according to Jeremy Achin, CEO of DataRobot:
“An AI is a computer system that is able to perform tasks that ordinarily require human intelligence. These artificial intelligence systems are powered by machine learning. Many of them are powered by machine learning, some of them are powered by specifically deep learning, some of them are powered by very boring things like just rules.
Why is Artificial Intelligence important?
Artificial intelligence systems are critical for companies looking to extract value from data by automating and optimizing processes or producing actionable insights. Artificial intelligence systems powered by machine learning enable companies to leverage their large amounts of available data to uncover insights and patterns that would be impossible for any one person to tease out, enabling them to deliver more targeted, personalized communications, predict critical care events, identify likely fraudulent transactions, and more.
Harvard Business Review gives key insight into how important AI is in today’s economic environment:
“The effects of AI will be magnified in the coming decade, as manufacturing, retailing, transportation, finance, healthcare, law, advertising, insurance, entertainment, education, and virtually every other industry transform their core processes and business models to take advantage of machine learning.”
This is really scary! AI can even determine whether a customer is credit worthy based on his or her lifestyle. Let me take an example of a lending process:
I open a current account in ABC BANK. My biometric ID is used. My personal details are collected including my residential address, which is verified by the GPS, while my smart phone can assist with my easy location. My social media and professional details can be accessed easily without question. I post various activities including my foreign activities and events on social media. My hotel is tracked down. My chat history can be verified. My photos and videos are online for easy tracing. My monthly salary and banking transactions are all seen by the alert messages. Transfers made to others through bank or mobile or other fin-tech apps are all seen by AI! All my “illegal or underground” activities are detected by the robot who is thinking like me. My gambling habits which my spouse has no idea is identified by the robot machine thanks to the alert messages to the betting company or casinos. I ask for a loan. Instead of a normal routine credit score card completed online to be followed by an online approval, AI goes further to churn out all history, both wanted and unwanted about yourself which a credit officer would have had no idea about. This can determine whether you are credit worthy or not. Period. No human fuss. Hmmm. This means that there will be obvious job cuts.
Challenges being faced by some financial institutions
- Lack of right leadership, structures, talent ecosystems, cultures, and ways of working to execute their plans successfully.
- Struggle among some competing units and departments to determine which of them owns the digital agenda.
- Difficulty in getting their leaders quickly to adapt to the unfamiliar digital landscape.
- Inadequate resources and talent to facilitate the disruptive nature of digital banking.
- Difficulty in embedding a digital culture among staff and customers.
This digital transformation cannot occur without the rethinking of the back-office processes banks have had in place for decades, including a streamlining of operations and the integration of new data sets. But the most impactful transformation occurs with customer-facing engagement, including products, communication, customer-service tools and marketing strategies. In the end, it is all about creating contextual engagement across multiple channels.
Bank/Customer engagement is still key in a True Digital Organization
Becoming a digital organization is significantly more than simply providing online and mobile functionality. It requires supporting consumer engagement across all channels seamlessly. It also means simplifying all consumer interactions with modern technology. A ‘true’ digital organization focuses on the customer experience at every point of contact, throughout the entire customer journey.
Becoming a digital organization is a daunting process that involves bank employee activities and behaviours. This includes the way employees interact with other employees internally as well as with people externally. In many instances, the roles, responsibilities and organizational structure must change to accommodate this digital transformation. Not surprisingly, there also needs to be a culture instilled that supports the new digital organization while enabling the company’s strategy.
I will pause here for now. Next week, we shall look at the effect of digital banking on the banks’ labour force, and how the staff can prepare themselves to take advantage of the disruptiveness of the fourth revolution. Keep thinking globally and acting locally.
TO BE CONTINUED
ABOUT THE AUTHOR
Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of two books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.