Traditional banks and smaller ‘new-age’ banks have much to gain by joining hands
The emergence of challenger banks over the last decade has changed the banking landscape significantly. Challenger banks are comparatively small retail banks that have emerged thanks to newer regulations that facilitate open banking. They typically operate in areas underserved by traditional banks and leverage technology to deliver a level of hyper personalised services that the traditional banking sector is unable to.
The ‘challenger’ model
Challenger banks start by focusing on a single product and then branch out to other offerings and services. They keep operating costs at a minimum which allows them offer services to customers at significantly lower price points than traditional banks. Today digital savvy youngsters carry out routine transactions with a challenger bank without ever having to step into a physical branch. Despite their success, challenger banks are still trying to figure out the best way to capture a small segment with a different value proposition and still scale.
Despite growing popularity of challenger banks, traditional banks aren’t really losing large numbers of customers. Even now, most people choose to continue with core banking services like savings and investment at traditional banks while using challenger banks for others. Traditional banks enjoy a large amount of customer trust, especially for large financial commitments such as home loans.
Additionally, services like overdraft which still hold value with businesses and households are not available with the new players.
It is time for traditional banks to step-up the digitisation drive and move to customer centric business models. With the right digital infrastructure, along with customer trust, they will have a distinct advantage over newer entrants.
Currently, they must focus not only on technology powered transformation to retain and grow their customer base, but must also re-establish their work-culture to attract the best talent to optimally use the new-age technologies.
To leverage technology, traditional banks must first abandon the idea that mobile apps are the only construct of digital transformation. They must instead begin by overhauling their systems, processes and even core banking strategies to put the customer at the heart of everything they do. Technology is the tool with which they can deliver the seamless personalised customer centric experience.
Banks must leveragecustomer data they hold to provide contextual and personalised customer experience in every product and service they offer. The focus must be on providing customers a seamless and personalised experience across all channels including, ATM, branches, website, mobile app, and other touchpoints. Even physical branches can be modernised using technologies including, robotics, Virtual Reality, Augmented Reality and AI.
Access to capital is a significant challenge for new-age banks. The pandemic has impacted venture investments in riskier assets affecting plans to scale up their business. This opens opportunities for symbiotic relationships between traditional banks and challengers. Traditional banks can invest in or acquire challenger banks based on their business synergies. This will help challenger banks with capital needed to grow and give them access to a deeper customer pool. The technology prowess of the challenger banks will help traditional banks digitise their business.
Symbiotic partnerships like this are already in play. Open banking regulations across the world will pave way for many third-party developers to build applications and services around banking customers. Banks can look out for many collaboration opportunities in the new scenario.
While government measures like the Jan Dhan Yojana have helped about 80 per cent of the population into the formal banking system, there is room for more.
The Bank-Fintech partnership can help further the financial inclusion and digital payment agenda in India. Small finance banks enjoy the trust that fintechs need, while FinTech’s digital capabilities help users bank from anywhere on any device. Their easy systems and processes will make the experience of opening and managing a bank account much easier for an illiterate and remote population.
Partnerships like this are already underway. For instance, PayTM Payments Bank recently partnered with Suryoday Small Finance Bank to facilitate low value fixed-deposit services to its account holders. By partnering with fintechs, traditional small finance banks can help further their financial inclusion agenda.
By collaborating, the traditional banks and challengers can prepare for a new post-pandemic ‘no-touch’ economy fuelled by services that deliver hyper-personalised customer experiences across multiple channels.
The writer is the founder and CEO of SunTec