The Digital Banking Transformation Trends that you cannot ignore in 2020.

Have you created a list of New Year's resolutions for 2020? Do you know what you want to do? Most people make a list of New Year's resolutions for themselves. But does the same thing happen in business, especially in banking? Probably the managers of particular departments in banks have more or less formalised goals for the New Year.

Do you have them too? Or maybe you're just making your plan for the new year? That's why in this article I describe some key digital banking transformation trends that cannot be ignored. They were prepared by McKinsey in October 2019.

Not everyone can be a leader, but you have to be at least at the forefront to increase profit.

Over a period of 8 years (between 2010 and 2017), McKinsey noted that in terms of generating profit, the first 20% of companies are 30 times more effective than the next 60%. In banking, the differences are even greater. It turns out that the best 20 banks in the world generate in total as much as 95% of total profits of the whole banking sector. In general, the banking sector is stable, but the vast majority of banks have not been able to go beyond breakeven point for many years. This means that their business is not risky, but at the same time the profits do not increase enough to compete with the market leaders.

Banks must choose between two options. They can stay in a safe but not very profitable status-quo, or they can disrupt this status-quo. The second option means starting bold changes leading to a real higher profit.

If the bank decides to make changes, it should start with a digital sales transformation. This is how our cooperation with PKO Bank Polski began. Until a few years ago, this bank had been selling practically only in traditional branches. Today, the bank can be an example for others of how to effectively approach the digital sales transformation. What is more, the efforts that have been made are in line with the trends listed by McKinsey.

2020 Digital Banking Transformation Trends

Banks must follow the example of the Big Tech companies

McKinsey points out that major Big Tech players such as Google, Amazon, Apple, and Facebook have achieved a high level of trust among their customers thanks to their transparency, ease of use, and personalization. These factors are the reason why more than half of their customers believe that these companies will handle their financial needs.

Banks cannot be blind to this situation. They have to change their technology. They should develop areas of deep data analysis and artificial intelligence. The goal is to achieve a level of customer service that will compete with the customer experience created by the largest Big Tech companies. The CEO of PKO Bank Polski in 2018 said that his bank should even transform into a technological institution with a bank license. He said these words when we were in the process of implementing significant changes in the digital sales transformation in PKO Bank Polski.

Ecosystems are an opportunity to increase profit

We heard a lot about the effective ecosystem building in banking at the EFMA Asian Retail Banking Summit 2019, but this trend is not unique to Asian banks. The Mckinsey survey showed that 44% of US bank managers expect that non-financial product sales in their banks will generate at least 10% of a bank's total profit. However, this is only a dream for many banks today. McKinsey notes that it may be difficult to encourage bank customers to buy a variety of services that are not typical banking products. Banks are reluctant to go beyond their comfort zone. Customers, on the other hand, have got used to it. The situation is different when it comes to Big Tech companies. In their case, innovations or introducing new products to the offer are a daily occurrence.

However, I can show on a Polish example how banks can meet the challenge of expanding their product offer. The insurance industry is the most similar to banking. That is why banks such as PKO Bank Polski started to create sales ecosystems exactly from the insurance industry. With our solutions, in 2019, the bank launched an intuitive motor insurance sales platform available from the bank's website and mobile application. At the same time, the bank was creating further ecosystems which were in line with consumer trends on the Polish market. As a result, also in 2019, the bank launched in the IKO mobile application the possibility to buy public transport tickets for most cities in Poland.

There is no retreat from the banking digitalization. All banking customer groups now prefer digital channels.

Until a few years ago, the use of bank mobile applications was reserved for young customers only. Today, as McKinsey has shown, there is no longer a banking customer group where digital channels would not be preferred over sales and service in traditional branches or by telephone.

However, there are still many banks that do not have fully digitised sales processes. This disproportion between customer expectations and reality, which often requires a customer to visit a branch, is so great that in many cases it discourages customers from completing their purchase. According to AITE Group, in some banks even 90% of online sales processes are abandoned. One of the main reasons is, according to Celent, lack of possibility to finalize the online sales process.

Customers expect that banks should truly act on relevant societal issues.

McKinsey points out that clients expect true and noticeable corporate social responsibility activities from banks. These activities should not only be a background for nicely written PR messages, but should bring real value to social or environmental issues.

An interesting example of combining point 3 (digitalization of processes) with point 4 is PKO Bank Polski. Until 2016, the bank had been selling mainly in traditional branches. For this reason, tons of paper had been used in the bank. The digitalization of sales processes and making them available on the bank's website and in a mobile application resulted in the bank reducing paper usage by 53% within 3 years.

The IT infrastructure must meet the requirements of a modern bank

Most of the banks still operate in the silo model, which paralyses growth. The change that banks have to go through does not only concern the departmental structure, but also the IT infrastructure and the previously used, outdated systems. They often block the possibility of adopting modern structures based on the omnichannel model.

The fundamental difference between the "old" and the "new" bank we've described in a separate article about the digital transformation of banking. Whereas, in this article we will present the basic financial benefit for banks that decide to undergo the transformation, related to the replacement of IT systems. According to McKinsey: "By leveraging leading-edge technologies, banks stand to make substantial potential gains: cost-to-income ratios going below 25%, cost-to-asset ratios approaching below 50%, and marginal costs effectively dropping to near zero.”

The good news for banks that have not yet replaced the systems for creating and publishing sales processes in the omnichannel model (just like our eximee platform) is that they can observe the effects of having such systems by the best banks. It is definitely easier to convince oneself to such an investment, seeing what benefits it can bring.