Digital Only Banks and the Importance of Customer Voice

Published by Cubic Author

Posted on 25/07/2024

Introduction to Digital Only Banks

Singapore became the first country to issue a Digital Banking license to virtual banks in 1999, and it was granted to 3 players. In November 2022, the doors opened with the first three Internet banks. Back in 2014, the Monetary Authority of Singapore (MAS) continued its noble effort in shaping up the financial ecosystem by passing the VMO (Virtual Markets Operators) for Bitcoin. Fast forward to 2020, Hong Kong started awarding banking licenses for the first time in two decades and introduced a new category of digital banks on par with traditional banks. With that, 8 applicants, out of which 4 received licenses – Livi VB Limited, SC Digital Solutions Limited, Ant SME, and ZA Bank Limited – opened for business in Hong Kong. The rest who did not secure a license were advised to engage in a better business model that can bring tangible benefits to customers and the Hong Kong community, connecting with customers, strategic business plans, and demonstrating that they possess technology capabilities as well as financial resources to carry out what they are looking to establish themselves as – a Digital Bank in Hong Kong.

Most of us have grown up in cities where we were used to visiting a neighborhood bank for performing day-to-day transactions. It was not just a transaction center, but also a place where we would look forward to visiting, with our friends and family members accompanying. Banking was the starting point of our financial life, from opening the first bank account to our first loan. Customers were pampered and provided with holistic banking services. And then started the journey of some of the banks transitioning into fully digital platforms or digital-only banks. In the present dynamics, banks have realized that manpower is their largest overhead and are working towards minimizing and optimizing the same, and robots are taking over, which was earlier deemed impossible. Today, a bank with no physical structure is one of the realities, with the digital or app-only bank becoming a reality. These banks have no branch network, where every single transaction is done on the digital front. The digital-only banks are becoming the future of banking as they will be able to cater to the requirements of the digital generation, who have always been connected to the social and digital platforms. The digital-only banks promise simple, quick, secure, and transparent banking.

Understanding the Significance of Customer Voice in Banking

But preservation of customer voice is important for reasons that go beyond mere kowtowing to the political process. If customer voice is evidence of the particular distinctiveness of bank customers, then stifling of customer symbols is indicative of the suppression of the very components that render a financial institution distinct in the marketplace. The effort of successfully keeping the customer voice falls disproportionately on new entrants to the banking market. There is a danger at present of those incumbent banks seeking to “innovate” by searching for new engagement methods, such as social communities for example, may serve to deflect rather than seriously engage with customer voice, making the concept less threatening than dealing with dissatisfaction.

As it deals with money and serves individuals across a range of ages and life stages, banking excites passion, at least amongst those for whom money is important – and that includes individuals who are by any measure not well-off. No surprise then that ordinary individuals – as customers and consumers – have an opinion and are vocal in proffering it. For banking, then, preserving the customer voice is of critical importance. It is most starkly demonstrated when things go wrong. The disaster that was the TSB Bank’s IT migration in April 2018 period illustrated both how customers made their disappointment clearly felt, and how the bank’s CEO was unable at times to clearly distinguish between feedback and complaints (comments made before a Parliamentary select committee). By contrast, when things go well, customers are often content to remain acquiescent (despite exhortations from consumer organizations).

Strategies for Capturing and Leveraging Customer Voice in Digital Only Banks

  • Expanding the capture of customer voice beyond ICT disruption of customer journeys to omnichannel
  • Capturing operational ‘voice’ internal focus and leadership role
  • Employing state of the customer tools
  • Understanding the power of customer emotion and loyalty development
  • Involvement at the board and C-Level
  • The importance and characteristics of a voice of customer program in OMNI banking
  • Starting with customer service is a logical first step.

Adopting the customer voice is particularly important for digital banks, where branch experience differentials are lost and the overall service and reputation of the bank is captured almost entirely by word of mouth, social media, and customer reviews. Strategies for engaging and leveraging CX insights are enhanced in OMNI environments but rely on many of the same simple systemic CRM practices and deeper involvement of leadership at board and C-Level. The journey must begin with the capture of customer voice across all touchpoints and the internal reminders that success in any retail banking environment reflects not just financial offer and affordability but consistent and positive customer service.

Case Studies and Best Practices

The big important question about first-generation digital-only banks is related to their use of open source and cutting-edge technology. Banks should use hyper edge AI consultancies knowledgeable on creating state-of-the-art work with a diversity of banking platforms and a different collection of diversified work.

There are two types of successful cases of digital-only banks: true customer experts with deep financial understanding and banks that have a high level of customer trust in their non-banking services. Both are world-class examples of non-financial services that are ready to expand to become our banks. We introduce some of these successful cases and the advantages, issues, opportunities, and the market’s expectations regarding each of them.

In this setting, setting up a digital-only bank as a first competitive move makes perfect sense as banks can easily go to the very same people and add a “real bank” to the service. Furthermore, establishing technological requirements and IT back-office as a separate unit gives so much more agility in terms of adaptation/hiring and changing skills for world-class AI experts.

The best practices for banks interested in transforming their sector come from true leaders who have done so much with the first generation of digital-only banks. These first-generation banks have combined financial services with a deep understanding of the necessity of creating compelling customer experiences and using AI-based algorithms for better personalized and context-aware products. This level of understanding can only be brought by digital specialists who fully master future digital trends and have understood that existing non-digital customer-based banking models are not sufficiently prepared to do so.

Future Trends and Implications for the Banking Industry

One of the biggest challenges and changes impending to the banking industry is the need to extract value and actionable information from the large volumes of unstructured customer data, including social network chatter, to help drive the digital strategy. As it stands, traditional banks may be the ones holding the least cards when it comes to exploiting their own customer voice. We predict that a large impetus to the evolution of customer experience management in banking will come from the factors that traditional banks are used to monetizing for a quick win: customer satisfaction and customer loyalty. The right customer intelligence will enable the right conversation with each customer segment, helping to retain and gain new customers.

As part of an ever-increasing drive to increase profitability and lower costs, traditional banks tend to focus much more on channels and transactions than on real customer needs. Over the past 20 years, traditional banks have invested significantly in digital, mobile, and multi-channel banking to enable their customers to interact with and use bank services on the go. Consequently, the industry may not be future-ready for digital-only challenger banks that will provide a differentiated customer experience, products, and service. These organizations are engineered to offer the best in customer relationship management, customer service, and customer loyalty.