How banks can survive the digital disruption battle

This is particularly the case for the banking business, as many players have widely adopted digital technology in order to streamline internal processes and to provide services to their customers. 
These players offer services through online channels or mobile applications, reducing the need for bank branches.
They are also able to reach groups of customers that lack access to traditional banking services. Moreover, information obtained from these new service-provision channels can be analysed using advanced analytic technology to consider lending to customers.
Thus, with stronger competitiveness, adopters of technology are able to transform the banking industry and completely change the way businesses operate. We call these players, “challenger banks”.
Challenger banks are players that offer financial services through online channels or mobile applications. This enables them to provide services at lower cost, get higher returns, and deliver products that better satisfy consumer needs.
These challenger banks can be divided into four categories, the first being traditional banks with a full banking licence, such as SCB, which provides services through SCB Easy App. The second are “neo banks” without their own licence but which cooperate with licensed banks such as Baixin, an online bank initiated from a cooperation between China’s CITIC Bank and Baidu, one of the three tech companies in China, or BAT that includes Baidu, Alibaba and Tencent. The third category composes “beta banks”, a subsidiary of traditional banks, which offer services through its parent bank such as Finn, a subsidiary of JPMorgan Chase. Finally, there are players from other industries that offer different forms of services such as telecommunication businesses that are granted an e-money licence such as TrueMoney.
Moreover, challenger banks are likely to continue their remarkable growth. Allied Market Research has forecasted that the global customer base of challenger banks will expand by as much as 52.6 per cent CAGR during 2017-2020, especially in the UK, Germany and China. 
This rate of growth reflects increasing demand and consumer readiness driven by the rise of smartphone penetration and confidence in the mobile banking system, as well as players’ views on the growing importance of technology for businesses. 
China is another country worth keeping an eye on given its fastest growing challenger bank market relative to other countries.
Also, there several major IT companies, namely Alibaba, Tencent, Baidu, and Xiaomi, have begun operating such business under MyBank, WeBank, Baixin, and XWBank, respectively. They offer financial services that meet the needs of consumers and target SME customers without access to financial services from traditional banks by utilising existing competitive advantage, particularly from having advanced technology including AI, Big Data, or Cloud computing, for their business operation.
This yields significant benefit for business performance. For example, MyBank, which offers online-banking services for Alibaba, applied AI in lending in the form of information-based lending by analysing the financial information of Alipay users. 
This led to the development of financial products like loans without collateral, with increased performance for requiring only one-second credit-approval times and reduced operating costs as all services are provided on a mobile application.
Thus, this reduces the need for physical bank branches and a large number of staff, lowering costs of credit approval to less than US$1. In addition, this helps reduce credit risks, as reflected by an NPL ratio as low as 1 per cent, lower than China’s total NPL ratio of 1.7 per cent.
Turning to Thailand’s banking sector, not only should they place an emphasis on advanced technology and continuous development of mobile banking, they should also look for a new way to take advantage of existing endowments that competitors like non-banks do not possess.
This include branches located throughout the country. Deloitte Insight’s report, “Recognising the value of bank branches in a digital world”, suggested improving the customer-service experience at branches. 
The survey found that bank branches remain important in the digital era, especially for transactions related to complex financial instruments. In addition, branches have higher levels of consumer satisfaction that do mobile channels as the branch remains a symbol of trust, which is the most important foundation for a banking business operation.
Therefore, players should focus on adding value to bank branches, as well as establishing seamless connections between customer services at branch and through digital technology in order to enhance consumer experiences. This can be done through three strategies as follows:
1. Adopt an omni-channel strategy to create seamless consumer experiences between online and offline channels. The survey suggests that 70 per cent of respondents view that such an experience is very important when making decisions on the main bank for their financial services. Banks can thus apply this strategy by integrating real-time data from all channels.
For example, if customers fill in an information form through an online channel, the bank branch should be able to retrieve that information so that customers do not have to waste time filling in the same information again.
Through entering the phone number of customers, the bank branch can then retrieve all the information for further use. 
2. A strategy that creates a sense of community, such as transforming a branch into a café, results in a superior experience for customers compared to just depositing, withdrawing or performing general financial activities. According to the survey, nearly 31 per cent of respondents are likely to visit a branch more often if it has café for relaxing or working.
Capital One, a major US financial institution, has opened a branch with a café inside, where arriving customers can discuss financial products with a Café Coach or other staff at that branch, or meet friends. Free Wi-Fi is also available. These services can perfectly meet the needs of millennial customers.
3. A strategy which incorporates the human touch in technology. One-third of respondents said that they are likely to visit branches more often if they offered digital services that would make getting financial services more convenient, such as having a self-service screen and robot to service customers. At the same time, branch staff are still available to assist customers when necessary. 
HSBC has introduced the Pepper robot to provide customer service at its Manhattan branch, but not as a substitute for branch staff. Pepper will answer basic questions from customers and bring customers to meet a branch staffer.
Above all, it can be seen that in the midst of the digital disruption, banks should adapt quickly by applying advanced technology and developing mobile banking continuously, as well as by utilising existing branches as a valuable resource for the bank.
This approach offers banks a competitive edge over non-bank competitors, as consumers still prefer having human interactions – a requirement that bank branches can perfectly meet.

Somkrit Krishnamra Partner works in risk advisory services at Deloitte Thailand, where Kanchanok Bunsupaporn is a senior consultant for clients and industries.

Somkrit Krishnamra

Kanchanok Bunsupaporn