Digital banking is about moving banking processes online. Not only are the back-end administrative functions being digitised, but also account services, deposits, withdrawals and transfers, loan applications, and paying of bills. And, on the whole, customers are becoming increasingly comfortable with this.
In a pioneering space, digital banks should ideally be able to create more innovative products while operating with lower cost to income ratios, meaning they will be able to pass these savings on to customers. By making banking more affordable, they will appeal to a broader range of consumers.
Digital banks, including the likes of Discovery Bank, TymeBank and Bank Zero, are starting to challenge South Africa’s legacy banks in terms of the costs and service offering. According to Dan Jones, partner and head of Capco’s UK Digital practice, in an interview with Raconteur, to remain competitive, legacy banks are going to need to become more agile and customer-centric and bring new innovative products to market more rapidly.
The concern currently for digital banks is that their smaller margins may make scaling difficult due to fewer resources. Digital banks, especially in South Africa, are also underpinned by very expensive infrastructure and are competing for a relatively small market, while the well-established banks are innovating products to attract a lower-income, unbanked population through initiatives like FNB’s eWallet eXtra and ABSA’s Whatsapp banking and downloadable account.
Digital at their core – but not enough
Although South African banks are converting their core systems to digital, they are not necessarily grasping what a digital transformation will mean to banking in the future.
Technology is not only about enhancing business operations and practices; it is more importantly about enhancing the customer experience. Banks, says associate director for Technology Advisory Services at Deloitte, Karoly Kramli, need to actively engage the customer and understand their needs.
Keeping up with the changing face of digital banking requires banks to adopt well-thought out, comprehensive digital strategies. Kramli believes that most African banks are currently not using digital technology to its full potential. He says banks should be leveraging digital to enhance customer engagement, streamline processes, and most importantly to simplify and re-imagine core back-end systems. “Very rarely do banks strategically think about the use of digital across all three scenarios,” he says. Kramli continues to say that the problem is further exacerbated by banks who think their digital strategy is purely tech-driven and can be implemented by a single tech platform or product, like a banking app for example.
Going forward, banks are going to have to operate for the benefit of society.
Consulting firm, Deloitte, believes that there are three important trends driving the future of digital banking and that banks need to include them in their digital strategies. The first is that digital banking needs to result in the significant reduction in the cost of banking. “It is not unreasonable to expect that in the near future banks will need to zero-charge basic transactional accounts,” explains Kramli, and then make their money through interest payments on loans or charging for analytical insights.
This disruption may be more positive than anticipated – if people are willing to embrace the change.
The second area banks will need to focus on is to ensure that when they build the infrastructure or technology underpinning the bank, that it is open. Europe’s new Payment Services Directive (PSD2) regulation is forcing banks to open up and share customer information. Kramli says that banks need to be prepared to share data as customers are no longer going to have a single bank servicing their banking needs. PSD2 will see customers choosing to have their financial services provided by a multitude of banks. In other words, a client’s transactional account may be with FNB, but their credit card is with ABSA, while Standard Bank offers their mortgage. These accounts will all be managed by a single third-party bank or provider. And although PSD2 is currently a European law, these changes will soon filter down to African banks, warns Kramli.
Finally, Kramli stresses that going forward, banks are going to have to operate for the benefit of society. “The ability to transact within a banking network will soon be seen as a basic civil right, and banks need to realise that their basic services form part of the future fabric of society and need to be designed to that end.” He gives the example of the Nigerian Banking Verification Number (BVN) which gives the client a universal bank account number, which in addition to tightening security within the banking sector, is becoming a mechanism of providing a digital identity to Nigerians.
Although South Africa is seeing an increasing number of smaller digital banks being given licences, Kramli believes some are missing the mark when it comes to aligning with these trends and embracing the true future of digital banking. “However, when you look at East and West Africa, you see more of these principles being applied,” he notes.
Financial inclusion is ultimately what digital banking is about.
Financial inclusion is ultimately what digital banking is about. The World Bank considers financial inclusion key to reducing poverty and boosting the economic prospects of people. Half of the world’s adult population remains unbanked. In South Africa, the unbanked population stands at around 11 million people, about 19% of the population, further up into Africa this figure is as high as 85%.
Ideally, digital banks of the future should be able to turn this around and draw people into the formal banking sector by offering very affordable or free banking. Digital banking is ultimately about empowering customers and monetising the consequences of this.
Jobs in the age of digitisation
As technology becomes more pervasive, the more it is being used to replace menial tasks people have performed on a day to day basis, from basic mechanical work to back-office administrative functions. The World Economic Forum predicts that 41% of all work activities in South Africa can be automated.
When it comes to the banks, we are already seeing reports of job losses due to digitisation. Moneyweb ran a piece saying that Nedbank, ABSA and Standard bank reduced their staff compliment by over 2 200 staff, Standard Bank, alone, announced it will cut 1 200 jobs as part of its digital strategy. But that does not necessarily mean that thousands of jobs are being threatened by digitisation. In fact, FirstRand and Capitec have added to their staff compliment.
Associate Director for Technology Advisory Services at Deloitte, Karoly Kramli, believes it is a myth that banking jobs are going to fall away because of the introduction of digitisation within the banks. “In South Africa, we still like the face-to-face interaction,” he said, and then added: “Digital does not mean that you deconstruct the physicality of banking.” What is important to understand, as banks move to digitalisation, is that the nature of jobs will change, but it does not mean the eradication of the branch. In a digital world, customers, however, will start demanding the optimisation of their service offering.
Dan Jones, partner and head of Capco’s UK Digital practice said in an interview with Raconteur that customers now expect speed and flexibility to be part and parcel of the service they receive at branch level, they are no longer attractive add-ons. As such, the employees servicing these customers need to use technology to be able to offer solutions to customers instantly in a single interaction.
In order to provide an enhanced level of service being demanded by customers, the skill set of banking employees needs to change. Consulting firm Deloitte works on the principle of the Purple Person. This person has the ‘blue skills’ which are softer, and include empathy, communication skills, business acumen, and storytelling abilities to help them make complex issues simple. These softer skills need to be combined with the more technical ‘red skills’ which is the ability to use technology to service the client and to analyse data being produced by digital systems. So not only can these people communicate well and understand where the business is going, they can use technology to offer an improved level of service to the customer.
The reality is that the digital job market is going to be ever more fluid. McKinsey’s Jobs Lost, Jobs Gained: Workforce Transactions in a Time of Automation report says: “New technologies have spurred the creation of many more jobs than they destroyed, and some of the new jobs are in occupations that cannot be envisioned at the outset.”
The presiding thought around jobs in a digital world is that people need to be willing and able to adapt to change and reinvent themselves. Kramli says that banks need to invest in their people to allow them to meet the changing demands of customers and a new level of service. And in Africa, specifically, people need to go hand-in-hand with technology. Which means that as African banks attract more of the continent’s unbanked population, they are going to need more people to service this increased client base.
Ginni Rometty, chairman and CEO of IBM, probably sums up the digital job market best when she says that artificial intelligence and technology is not going to replace people, if anything it will augment people. This means that people and services are unlikely to be exchanged for technology and robots, but merely that the customer experience will dramatically improve.
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