Searching for value in “digital” conundrum of banking

The world was static till “digital” came along. The value was defined by industry and banks would tweak it here and there. The improvements were possible in business metrics of productivity, risk and revenue and you could improve and optimize endlessly. Market success was a given if business ran efficiently.

Banks would define their value proposition and reach out to customers, customers would try hard to decipher differences between competing banks and would be entrapped in their own perception of value. What is this “value”? Call it services (meeting expectations of services), relationship value (personal attention bestowed), brand perception (high street, prestigious), loyalty affiliations (family’s bank).

Then came electronic banking. Slowly and surely, ledgers gave way to core banking, cash tokens to ATM machine, cheques to cards, and pass books to statement of account received in email. Then came, online banking, mobile banking, phone banking. Banking became faster, smarter and accessible round the clock.

Then came “digital”.

Customers think that things have become even more faster, smarter and accessible. What about value? Well, banking is hassle-free, easy and on the app. Isn’t he spoilt for the choice?

Bankers riding the wave of technologies think of more customer insights through analytics, more automation for operations, smoother customer journeys over product lifecycle, open APIs creating their own niche platform. Maybe a new world order of banking which would be frictionless, omnipresent and at your beck and call.

Other entities called fintech, small startups with their fresh look at a problem and deploying clever uses of technologies entering the fray to become ‘banks of tomorrow’.  

Now, when the norms and ‘rules of the game’ of banking and financial services have drastically changed with its digital ways, the pertinent question remains as to where more values would come from. For in the long run, the players who provide sustained value or accumulation of values, would be the ones to thrive and survive.

What is this value we are talking about?

Traditionally, a bank’s value proposition has been constant, a source of sustained competitive advantage. In the digital age, delivering the traditional value proposition would not be sufficient as they have taken shape of something like a hygiene factor. Instead, new value propositions for customers need to be found through better understanding of real needs of customers in the emerging era of digital possibilities. Without this new value proposition, bank’s ability to retain and acquire customers would surely diminish and one day, possibly vanish.

Sum of value propositions define and dictate the business model of banks. While we are not discussing business models here, suffice to understand the underlying connection between them.

Banks had harnessed values in the past through customer life stages, customer’s professions, customer lifestyle and married that to product life cycle to enhance attractiveness of their products and services. In the digital era, the values are trapped in network (social media), connectedness (Internet of Things), diminishing boundaries of industries (retail, telecom, banking, insurance). It gives new, challenging and contentious meanings to age old management concepts of bundling-un-bundling, aggregation-segregation, intermediation-disintermediation. It creates possibilities where none existed.

In the digital era, value propositions change its shape and color. They become dynamic, flexible, forever changing and evolving, driven by ‘network effect’ and open up entire spectrum of value chain to create endless possibilities of ‘values’ and ‘value drivers’. They are underpinned by ‘network effect’ and ‘reciprocal value flows’.

Incumbent banks could be challenged and disrupted when:

a.      A difference in value propositions that dramatically replaces the value provided by incumbent bank (even for small segment of customers);

b.      A difference in value network that creates a barrier to imitation by the incumbent bank;

While disruptions would happen when both would happen together, occurrence of second one could create whole new lines of businesses.

Innovations by banks are imperative and that is the only way forward. They must leverage supports from their partners and providers and think through this, not just like science of possible but an art of warrior. About time also for regulators to wake up to this reality and take a grip for suitable changes that warrant.

‘Faster, smarter, accessible’ is given now and would carry on at its own pace. It’s about time, banks really up their antennae and play the trans-formative game the digital era demands. Redefining values and searching for new ones should be the first step to achieve that.