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Retail Banking Digital Disruption: Top Trends

March 30, 2021 By: Alex Torres

Before the pandemic, digital banking never reached its full potential. Retail banks and their clients were reluctant to change their old ways, and the digital solutions were not particularly appealing. Then came retail banking digital disruption. 

Since the pandemic started, 44% of retail banking clients have been using mobile banking apps more often, according to a recent study from Deloitte.  

Now, retail banks are realizing they need to figure out how to drive digital customer engagement while maintaining satisfaction and retaining clients. 

Digital is Disrupting the In-Person Experience  

In the past banks boosted loyalty by offering person-to-person experiences, which has become more challenging with limited in-branch opportunities. 

Some banks have implemented new forms of live interactions via bank staff at ATMs. Others have launched self-service, contactless touch screens, tools that incorporate AI chatbots & banking assistants, and sensor-based AR/VR technology.

Digital-only, self-service user interfaces can save banks money, but they need better tools to manage this new technology, like Quantum Metric

As scary as it sounds, banks will need to overcome organizational silos that have resulted from outdated structures and hierarchies. This means that new technology and agile methods need to be integrated not just with IT departments and DevOps, but also into business operations as well.

Cloud computing, machine learning, robot process automation, and distributed ledger technology can all help retail banks save many, drive scalability, iterate quickly, and build digital products faster. 

Now, retail banks are facing challenges such as mounting tech debt, which has resulted from outdated legacy infrastructure, obsolete technologies, too much dependence on rigid mainframes, and serious data fragmentation. 

Big Tech’s Influence on Retail Banks

These days banking clients compare their experience using Amazon and Facebook to logging into their checking account. Retail banks are now competing to have a user experience that matches those offered by the biggest tech companies. 

For instance, digital natives have grown so accustomed to voice assistants—including Siri (Apple), Cortana (Microsoft), and Alexa (Amazon)—that they are expecting similar services from their own banks. 

While many enterprises talk about wanting to act more like startups, traditional retail banking goes against disruption. 

Startup Disruption

Fintech companies can easily find a gap in the market and launch new products. Traditional brick-and-mortar banks, on the other hand, cannot. 

Some retail banks are slowed down by complex legacy platforms, limited capacity to invest in customer or UX analytics tools, and poor user experience—at least compared to big tech companies. 

Startups, including fintech and B2B SaaS companies, are looking for “gaps” in retail banks’ digital strategies. They focus on rapping the financial benefits from their state-of-the-art technology, which is targeted at specific business and user segments. This means that retail banks benefit from partnering with startups, who provide technology that enables retail banks to perform better.

While many retail banks will continue to offer in-person services for the long run, end-to-end digitization may very well become the industry standard.

Digitization helps retail banks to: 

  • Acquire new customers
  • Provide new and optimized products 
  • Expand their omnichannel network
  • Create new pricing models 
  • Make processes and asset utilization more efficient 

Here’s a look at some of the startups that are disrupting the retail banking landscape. 

  • Consumer lending: Lending Club, Prosper
  • Payday lending: Avant, LendUP
  • Purchase finance: Lending Club, Upgrade USA
  • Education financing: SoFi, Upstart
  • Real estate: LendingHome, Money360
  • Merchant cash advance: C2FO, FastPay
  • Small business financing: OnDeck, Kabbage,
  • Transaction Banking: Simple, Moven
  • Wealth Management: Wealthfront, Betterment
  • Mortgages: LendingHome, Money360
  • Personal loans: Oportun
  • Payments: Stripe, Venmo, Square
  • Startup Equity: Carta 

There are also keyHere’s a look at the areas that you can expect the biggest disruptions to retail banking’s digital strategies. 

Targeting an underserved market (millennials and Gen Z)

Whether they like it or not, retail banks must acknowledge that millennials and Gen Z’ers are the future of retail banking, and digital natives will not put up with lackluster, outdated systems. 

This means that retail banks can either 1) do what the new entrants are doing to stifle competition or 2) build a fundamentally different business with new products and services.

Retail banks that have started redesigning their products around customer behavior, also known as sustainer banks, have discovered how to improve the client experience. High mobile usage has enabled top performers to grow, on average, five times faster than retail banks overly focused on desktop or in-person experiences. 

Advanced app features such as push notifications, superior user experience, and other innovative capabilities are now the gold standard for banking UX. 

Using Digital Channels to Boost In-Person Engagement 

Even before 2020, digital banking activity was already enabling superior customer service, with many retail banks seeing increases in digital sales penetration, mobile activity, annual inbound calls per agent, active customers per branch staff member, and annual complex sales per branch staff member. 

By the beginning of 2020, before the pandemic, branch use was steadily declining. More people turned to digital channels to accomplish everyday tasks, like depositing checks. In the United States alone, banks with remote check-deposit capability had about 40 percent of checks deposited via their apps in 2019.

Like Quick Service Restaurants and brick-and-mortar retailers, who are also finding innovative ways to boost in-person engagement like curbside pickup via mobile devices, banks could curb their overextended networks while nonetheless benefiting from existing branches.

In fact, a recent set of predictions from Forrester encourages banks not to give up on the in-person, branch experience. Instead, executives should be thinking about how to use digital channels to drive in-person engagement. They predict that the branch could become an important place to discuss financial health and other financial obstacles. 

Leveraging Data Analytics and Design Thinking 

Top performing digital banks are investing significant resources into data-driven design thinking. That is, they are using actual customer data to build features that drive engagement. To offer one example, some banks have discovered that a customized landing page leads to increased log-on frequency. 

As data analytics becomes more important, retail banks will need to invest in tools for streamlining data flows and deploying data analytics. And like many tech companies, banks are rich in client information. The challenge, then, is how to use that data ethically, responsibly, and strategically. 

Rather than blindly set up goals, retail bank leaders must ensure that the digital business architecture aligns with the organization’s business goals. This means that all metrics must be monitored and measured against business outcomes, such as retention, revenue, and conversation rates. 

Advanced analytics platforms can help retail banks identify new opportunities based on a number of factors, including demographics and user journey. Data analytics and mobile devices, for instance, have made it easier for banks to offer hyper-personalized products and services right before point of purchase. 

Lenders are also getting more creative with how they use data, with some turning to new forms, like Yelp reviews, to determine loan terms for small businesses.

Integrating Customer Experience Analytics 

The digitization of banking means that the industry is becoming more customer-centric and less focused on legacy structures.

As retail banks look ahead customer preference will be a driving factor in determining new features, services, and products. And each bank’s success will depend on their ability to respond rapidly to customer demands. 

When digital features are poorly designed and difficult to use, more customers end up connecting with a call center, which means both lost time and money. But retail banks offering a standout digital experience across their portfolio can reduce spending on these low-value activities. 

An analytics-driven, omnichannel customer experience makes it easier for agents to respond to simple customer service requests quickly via email or text, follow up on partially filled out applications, and more. This allows for more upsetting opportunities, faster claims processing, and other qualities that help to retain existing customers.

By understanding what customers want and need, digitally enabled workforces become more productive and satisfied at work. Still, retail banks need to ensure that their new tools are still in compliance with all regulations.

Improved customer experiences in digital banking will continue to include features such as face ID, quick balance checks, and streamlined money transfers.  

Cloud Computing

Cloud computing technology that uses API-driven systems are helping retail banks to reimagine how they approach product & UX design. 

In an effort to keep up with major enterprises and brick-and-mortar banks, small startup companies, including fintech, started investing in cloud technology over a decade ago. These startups’ initial investment in cloud migrations made it easier for them to integrate with the latest technology, giving them a leg up on enterprises that kept using their legacy systems.

It turns out that cloud migrations reduce costs, modernize tech stacks, and streamline the process of virtualizing the workforce. Cloud technology enables retail banks to benefit from API-driven systems, allowing them to revolutionize their approaches to product & UX design. This means user experience improvements, faster payments, and improved access to customer data. 

Deploying AI and Machine Learning

Retail banks must spend significant resources on complex tasks like loan restructuring, which can’t be automated so easily. So instead they need to look at other ways to save money and preserve resources. That’s where AI comes in.

One way that banks can deliver a superior customer experience is by leveraging machine learning and AI to improve things such as AI-powered chatbots, improved call-center efficiency, better tools to help customers with loan management, and robo-advisors. These tools help streamline the investing and onboarding processes. 

AI will also help banks manage and assess other factors, such as the how unemployment rates, supply chain disruptions, mounting debt, and foreclosures will impact business.

How Quantum Metric can help retail banks disrupt their current digital strategies 

Quantum Metric, the global leader in Continuous Product Design, is already helping retail banks, financial institutions, and other organizations adapt to the digital disruption brought on by big tech and accelerated by the Covid-19 pandemic.  

Today, many bankers spend a significant portion of their time configuring events and sending dozens of emails to validate one issue. Similarly, development teams continue facing a mounting backlog of requests, but have little way of knowing how to prioritize them. Worse yet, most retail banks are only discovering problems after customers call, complain, or fill out a satisfaction survey.

Is your team spending too much time triangulating data across surveys, error logs, call centers, and other sources? Is your organization struggling to align teams—including Product, DevOps, IT/Ops, customer experience (CX), insights, and marketing—and overcome disciplinary silos? 

If this sounds familiar, then your retail bank might benefit from partnering with Quantum Metric, the Continuous Product Design Platform that has helped to drive brick-and-mortar banks’ digital transformation by moving organizations towards a more agile, customer-centric structure. 

Quantum Metric draws on AI, machine learned, encrypted user session replay, and other techniques to help banks identify, verify, and improve the user experience faster. Each item in the backlog is tied to business impact, so it’s far easier to understand how much revenue each clumsy design or technical error is costing the bank. 

Retail banks have used Quantum Metric to continuously identify ways to improve things like mobile check deposit flow. The platform assists teams with improving small but mighty features, such as the UX design and wording of error messages. Quantum Metric makes it easier to formulate an hypothesis, set up an event to capture data, and build new features that reduces friction. 

Quantum Metric has also helped retail banks in other ways, such as:

  • Increasing loan application completion and identifying features (such as loan calculators) causing friction
  • Enhancing UX on mobile apps to reduce the number of people calling in or using their desktop 
  • Improving digital self-service by understanding what customers are doing before they land on the “Contact Us” page
  • Rescue new accounts and applications by triggering a live chat or other feature when someone is struggling to open an account or complete an application
  • Detect and provide fraudulent activity by identifying patterns such as multiple logins or cutting and pasting login information
  • Personalize and upsell in transaction flows by improving product placement and offering real-time engagement 
  • Identifying API anomalies that caused a site-wide crash
  • Decrypting secure data to support customers 

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