Banks Prioritizing CX, Cost Cutting And Innovation To Thrive, Shows Study
Against the backdrop of an increasingly digital world, banks are facing growing competition from nontraditional players such as fintech. This has put greater emphasis on the need to innovate and transform while keeping an eye on cost cutting to improve the bottomline. These are the findings from a study by tech research firm Finextra that was commissioned by IT services provider Virtusa.
The study, which polled more than 100 banking executives from North America, Europe and the Asia Pacific region, showed that 79% of respondents picked digital customer experience as their top priority, reflecting how digital technologies have become central in banking operations.
Cost-cutting was the second-highest priority at 46%, propelled by tech adoption and branch transformation. Banks are reducing costs by migrating to digital platforms like the cloud or adopting new tech like AI. For example, JPMorgan Chase partnered with software company Persado to use its AI-powered tool to improve its marketing messaging, which helped the bank check its huge expenses.
Meanwhile, 36% of respondents said they’re closing more branches that are becoming costly to operate, while just 6% are expanding their branch network. Another 36% plan to maintain their branch count but transform them. Some banks are taking a hybrid approach. For instance, Bank of America piloted humanless branches incorporating ATMs and video conferencing. Similarly, Citi debuted a branch with “Smart Banking” technology that features interactive digital services.
Innovation is another top spending category among 45% of respondents. The study highlights that in the past IT spend was largely driven by regulatory compliance, with nearly 80% of spending used for mandatory items. Now, IT budgets are being reallocated to innovation around new products and services. Many banks are rolling out advanced digital features that help attract customers.
More specifically, banks are spending more and more on application programming interfaces (APIs), cloud migration, and tech like AI to boost efficiency.
Eighty-seven percent of respondents said they are evaluating or have already implemented APIs. According to the study, the use of APIs is not a new initiative, but regulations and compliance have driven their wider adoption. Banks are embracing their use to meet the expectations of their customers and match the competitive offerings of new entrants. Bank and fintech partnerships are emerging, and although there are challenges in working together, the survey results record 70% of respondents have at least one solution in production.
Eighty-six percent of respondents have adopted cloud solutions. Banks of all sizes are investing in cloud technology, which could help them streamline services while enhancing security. Like, Citizens Bank is investing $50 million to fuel its digital transactions and accelerate its migration to the cloud.
The study highlights the use of AI in fulfilling compliance obligations. AI can reduce instances of false positives, which typically require human intervention and come at a high cost, for example. But on a broader scale, banks could use AI to transform the customer experience by enabling frictionless, 24/7 customer interactions across a variety of channels, which could be tailored to each individual client. The use of chatbots, voice assistants, AI in biometrics, and personalized insights are examples of this development.
Executive Vice President and Global Head of Transformation Services at Virtusa, Bob Graham. “The banking industry is undergoing a seismic shift that demands banks reinvent themselves. The study shows several trends accelerating over the past year including open banking, cloud, micro-services, fintech partnerships, and the use of artificial intelligence and machine learning that are all driving banks to expand the frontiers of digital transformation.”
The research paper also highlights that banks are now actively partnering with relatively small suppliers, seeking to use regulatory changes to drive new income streams and use new technologies like micro-services, artificial intelligence, and blockchain to provide enhanced internal controls, security, and support new customer propositions. In India, Yes Bank recent leveraged blockchain to issue Rs 100 Crore commercial paper – an unsecured money market instrument issued in a promissory note. Blockchain in CPs will help reduce the turnaround time for issuance and redemption.
According to the study, the market sentiment appears to be positive with budgets freeing up from regulatory compliance initiatives to spend on other programs such as innovation, measures to improve business efficiency, and new products and services.