Digitalisation of the bank

The hardest currency for banks remains trust

In future, trust will remain at the core of the relationship between banks and customers. However, the interaction between them will change fundamentally and not all banks have made equal progress.

Urs Binder, 

Banks have reached the crossroads, and soon there will be the “bank without people”. This, at least, is what current headlines about digitalisation of the banking business would have you believe. Experts emphasise that digitalisation brings gains in efficiency, allows big data analyses to be used to gain new insights into customers and markets, and forms the basis for new ways of interacting with customers.

Revolution or continuing evolution

And it is set to continue: The blockchain is the “next revolution in banking”. This was what Annika Schröder put on the record at the fourth Swiss Digital Finance Conference in early February 2016. Schröder is responsible for innovations at the UBS, and maintains: “This technology has the potential to change the business model used by universal banks from the ground up.”

And this is true, because the blockchain is much more than a basis for disreputable cryptocurrencies like the Bitcoin. This could well end up producing a “bank without people” – if it weren’t for the customer. Because blockchain is just one of several topics related to digitalisation.

It is when dealing with the customer that digitalisation is having its most immediate impact. And the “millennials” demonstrate that the latest generation are not used to making calls or having to call into a branch. They want to communicate with the bank by chat and instant messaging, do their e-banking on their smartphones, and not have to hold a personal consultation every time they need advice. They would much rather use software to change their credit limit and to order bank products, or even open an account in the first place, than have to front up to the teller. The banks are therefore facing the challenge of giving customers access using as many channels as possible. With the major changeover from bank-specific in-house solutions to standardised core banking systems in the backend having been implemented, the front end is now the focus of upheavals.

Different levels of maturity

The banking barometer 2016 issued by EY reveals that only one third of the banks surveyed actually have a digitalisation strategy in place. Just 27 percent of them are expecting that digitalisation will result in fundamental changes to the financial industry, while two-thirds simply consider digitalisation to mean additional sales channels. The Digital Banking Expert Survey conducted across Europe by the consultancy company GFT comes to quite different conclusions. It shows that 58 percent of the Swiss financial institutes surveyed have a fully formulated digitalisation strategy – with this figure only being 34% across Europe. However, Switzerland is lagging behind when it comes to implementation: Just 6% have completed the implementation process, 76% are in the middle of the process, and 18% haven't even made a start.

Looking at the world of Swiss banking, the level of digitalisation in customer interaction presents highly varied pictures. A number of banks, including PostFinance, UBS and diverse cantonal banks, offer advanced online services such as personal finance management or e-banking by smartphone. Other use tablet PCs for consulting services, and offer a shared view of customer data and consultant information, or offer investment advice by means of robo advisors. UBS and Valiant offer integrated bookkeeping services with the account. Private banks continue to run their business traditionally, as previously the case.

The bank of the future

For Remo Schmidli, head of multichannel management at the Zürcher Kantonalbank, keeping a finger on the pulse is of utmost importance. “It’s best to observe the market attentively, and try out new technologies by using prototypes. This gives you a feeling within the company what it’s actually all about.” Once this level of maturity has been reached, then you are well equipped for the exponential growth that occurs when something is suddenly hyped. Schmidli goes on the explain what is important to remember while doing so: “All this only functions when the employees come along on the journey. If you neglect to involve them, then it’s difficult to really rollout a digital strategy.” The employees need to transform themselves from product vendors to customer coaches in a digitalised world of banking, and must be able to communicate with customers who are usually well informed as an equal.

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«Employees need to transform from product vendors to customer coaches in a digitalised world of banking.»

Remo Schmidli, head of multichannel management, Zürcher Kantonalbank

There will still be banks around in 2030. “They will develop at the same pace as the technology, and cooperate with fintechs,” says Schmidli. And physical banks will also continue to exist. They will adapt to the changing customer requirements and will increasingly choose to focus on consultancy services. This means they will more or less cease to be transaction-oriented – with fewer and fewer customers going to branches to withdraw money. The trend is towards added value, offering the customer help by providing integrated advice, with a real flesh-and-blood person as a counterpart. There will be more cooperative ventures with fintech companies, and the range of services available will grow. Even products not usually associated with banks might be added to the portfolio.

UBS is heading the pack when it comes to digitalisation. It is a co-founder of the blockchain consortium R3, has set up an innovation laboratory of its very own at the London-based fintech incubator Level39, and operates the think-tank “Y”, which is concerned with visions for banking “after digitalisation” and develops visions through to the year 2040. Even then, as Markus Iofcea the head of Y says, trust will remain the hardest currency of all in banking. However: Everything has speeded up enormously, services need to be rendered immediately and without any problems, and customers are able to rate and assess everything they experience.

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