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What Does it Mean for a Financial Institution to Be “Digital-First’?
It's no secret that digital-first financial institutions are winning more customers. Here's a look at what it takes to get there.
Banking is no longer just a weekday, 9-5 job; it happens 24/7. With modern technology and opportunities, the need to access banking information at any time is vital. Customers expect their banking brands to be available at any time and on any channel (website, phone, social media, email, etc.). For banks, credit unions, and other financial institutions to be competitive, they must create and maintain a “digital-first” mindset that goes far beyond a simple mobile banking application.
The pandemic wasn’t the sole driver of the increase in the interest or necessity of digital banking and financial services, but it did widely improve customer acceptance. BAI Banking Outlook research from May 2021 shows that, in the past year specifically, consumers' digital interactions have significantly changed. Of customers surveyed, 15% started to use the channel, 24% increased usage, and 43% did all of their banking digitally. This increase in usage accelerated because of the pandemic, but this trend is is not temporary. 80% of customers say that they plan to continue using digital banking after the pandemic.
What Does “Digital First” Mean?
No matter the industry, digital-first is a strategic promise to deliver products and services across various platforms or channels in flexible, convenient, and consistent ways for customers. This can include websites, mobile applications, text messaging, social media, and physical branch locations. Digital-first does not automatically equal digital-only, especially in the financial industry.
What Does a “Digital-First” Approach Mean for Financial Institutions?
In banking specifically, a digital-first strategy enhances the platforms or channels consumers use in various ways. A physical branch location integrates digital banking into the delivery model that customers want to see. In the same BAI research mentioned above, respondents said that the digital resources they would use in the physical branch include video ATMs, interactive teller machines with remote tellers, interactive welcome screens, and digital assistants to answer questions.
Going digital does not entail just launching one application or moderately improving the company’s website. It is about offering all-around digital products and services, including banking and payments, to best serve and benefit customers. There are four key pillars of a digital-first financial institution.
#1. Continuing Modernization
The customer journey should be constantly re-invented for all aspects. Modular micro-services with shared utilities are used repeatedly for creating new business logic. To take advantage of this approach, the current core but be strong enough to last between five and ten years. The risk profile is the lowest among these three approaches, with product complexities and conventional systems being the most significant challenges.
As digital banking continues to progress, four major components should be included in their campaigns:
- Omni-channel banking: Omni-channel banking creates a central access point for all platforms or channels, which will ensure a consistent and convenient customer experience across all access points.
- Open-banking: Traditional bank accounts that would bundle together various services are on their way out since open banking allows more choice and variety for customers.
- Growth Marketing: This involves analyzing and managing insights from large amounts of data to deliver personalization at scale for all consumers. This personalization can have an impact on other essential aspects as well. For example, financial institutions need access to crucial data like consumer behaviors, prime engagement time, and which offers would align best with the customer and institutional goals. Big data analytics will help improve marketing initiatives. Every customer will receive a product or service that has been customized to their own needs through their personalized channel or channels explicitly chosen by them.
- Digital Payments: While making payments digitally is a well-known process for many, it still manages to bring in new customers often because of its ease and simplicity. One thing that has become increasingly popular among smartphone users is mobile wallets. While mobile wallets emerged primarily for ease of payment, they have evolved to cover more financial services, including loans, insurance, and even investments. They can be personalized to fit the needs of specific consumers. The competition includes banks, their challengers, fintech companies, and mobile phone operators.
#2. Technology Stacking
This approach may be the most technologically advanced because it takes advantage of the cloud and its architecture. New customers are on-boarded with the new technology while existing customers are migrated. This approach is the most seamless and quickest transformation. It can be potentially implemented with the lowest monetary investment but does carry more risk than the continuing modernization approach.
#3. Maintaining Core Values
This approach involves rigid system upgrades every few years, guided by a strategical outline or map. It is pretty time-consuming and carries a significant risk when compared to that continuing modernization.
Speaking of maps or strategic outlines, a 2018 Gartner Survey showed that 88% of financial services firms are focusing on strategic digital optimization by adopting several key components:
- Enhanced Digital Experience: Ability to control multiple channels and deliver personalized content to the customers
- Digital Transactions: Introducing new journeys or opportunities to customers with multiple-host systems; it is also vital to transform the existing banks' API to conform to the open banking API standards
- Agile Innovation: Onboard and launch new services, resources, and opportunities in a streamlined, organized, ens, ensuring integration with existing investments. This agility and integration will give one financial institution an edge over another because of its modernization.
#4. Increased Security Measures
Digital-first banking’s central attraction may be the mobile banking application; however, by utilizing your smartphone, developers can also incorporate measures like biometric authentication or digital signatures to ensure that the correct, certified person of the application can access the information. If a physical card is stolen, users can freeze or cancel their card, alert their banks, and also receive notifications regarding unauthorized transactions in real-time. These live notifications can be essential in protecting customers from fraud. By protecting their customers, banks are, in turn, protecting themselves too.
Another component of increased security (next to face recognition and digital signatures) is online notarization. This is just another example of banks finally digitalizing conventional, tedious, and paper processes. While notarization has traditionally been an in-person process, since the pandemic struck in 2020, nineteen states have allowed for remote online notarization and declared it legal. This has allowed for continuous lending servicing to keep happening. E-signature and notarization technologies have been vastly picked up and implemented not just by the finance industry but also across many others. It is secure, instantaneous, reliable, and convenient.
Conversational AI for the Digital-First Financial Institution
Technology is advancing every single day. For the finance industry, digital-first banking offers a wide range of benefits, including convenience and security. The ability to provide both physical and digital banking services, real-time monetary management, and all-around security (including transactions) is exceptional. The top digital features convince consumers to switch from conventional banking methods to new, modern, instantaneous, and technologically advanced ones.
Financial institutions are increasingly turning to conversational AI to support their digital initiatives. For example, conversational AI-powered chatbots can assist with customer onboarding safely and securely, and they're available 24/7. There are multiple use cases for AI-driven chatbots in banking:
- Lead generation campaigns
- Collecting customer feedback
- Delivering on-demand customer service