Smart banks embrace new tech

E-channels must be developed to meet the changing needs and behavior of customers and support the real economy

Early this February, on the sidelines of the Bank of China's 100th birthday celebrations, we had the honor of inviting executives from the 29 Global Systemically Important Banks to participate in the group's first forum in Beijing.

The forum's theme was the new challenges and new missions for banks in the future. Most bankers realized, drawing on lessons from the global financial crisis, that banks must return to their fundamental functions - taking deposits, making loans and providing other financial services to customers - to support the real economy, rather than relying on the trading businesses between financial institutions themselves to make money.

However, these traditional businesses should be reshaped in the light of new technology and changing customer behavior. This could be branded as SMART banking, meaning financial services dominated by Security, Mobility, Automation, Remoteness and Trust, servicing customers anytime and anywhere.

Technology is changing the world. The adoption and diffusion of technology into our social lives has been getting faster and faster over the last decades. The arrival of the Internet, the emergence of smart mobile devices and mobile payment systems have dramatically shifted customer behavior and thus the business models of banks.

According to the book Bank 2.0, How Customer Behavior and Technology Will Change the Future of Financial Services by Brett King, within the past 10 years, banks have gone from a situation whereby 50-60 percent of transactions were done either over the counter at the branch, or through ATMs, cash and checks, to the current model where 90 percent of transactions are conducted through the Internet, call centers and ATMs.

Some surveys have shown that more than 50 percent of iPhone users have used mobile banking, and 33 percent of mobile banking users monitor their accounts daily.

Today, Nasdaq sees more than 60 percent of its trading volume generated from the Electronic Communications Networks. The Korea Exchange owes 90 percent of its trading volume to the Internet. In Hong Kong, HSBC's online trading platform now executes 80 percent of all HSBC trades via the Internet.

The substitution of paper money for precious metals historically made commercial transactions more efficient, but nowadays paper itself is a costly inconvenience in the payment system. In the US, the use of paper-based payment options, such as checks, has fallen from 81 percent of consumer spending in 1990 to 61 percent today. This trend will continue, and technology is presenting new and paperless ways of paying. The board of the UK Payments Council has set Oct 31, 2018 as the target date for closing the country's central check clearing system entirely.

Customer experience is becoming the key differentiator in financial services. With the global financial crisis, we are very clear that we should maintain strong relationships with our clients, and support them through the crisis.

There is no doubt that strong relationships with clients can be developed through electronic means. More and more people trust information received from online social networks more than they do information via the traditional media, and the younger generation like to conduct purchasing and payment activities online.

The digital age has given our customers greater choice, access to financial services, and better, faster, more efficient modes of doing business, which saves them time and gives them a feeling of control.

Simply put, if the banking industry is not improving the customer experience through technology use at the same rate as customers are adopting new technology, we will no longer meet our clients' needs and may eventually lose them altogether.

Technology use is closely associated with the size of an enterprise. The more the scale and scope of a bank grow, the greater the room for improvement becomes, and the more difficult it turns for managers to allocate the variety of internal resources without the use of technology. Therefore, they must make full use of the technology available to improve their efficiency. Wisdom is certainly created by human beings not by technology, but only technology can provide the means and ways, combined with human reasoning and experience, to effectively allocate resources and optimize business scale and scope.

Furthermore, technology plays an important role in the checks and balances in a bank. It is important that the power held by managers should be embedded into business processes and procedures, so that power abuse can be effectively constrained.

Investment in information technology is integral to establishing a smart bank. In addition to enhancing the existing branch capabilities with technology, we should evaluate the potential for further developing "e-channels" such as Internet banking, mobile banking and self-service banking, making it possible for us to break the physical limitations of branches and extend the customer base as much as we can.

Thanks to technology, we now have the ability to deal with oceans of data in daily transactions, so it is significant for us to be able to analyze how many products each customer has with our bank, and anticipate which products they will most likely need.

Many banks have recognized that products are no longer differentiated much, and branding is not the sole factor in success. What really matters is to adapt to customers' changing behavior by using technology.

No matter how we build up branches or "e-channels" to serve our customers, the most important thing is to proceed with business process re-engineering. In reality, the nature of a smart bank requires a transformation from a department-centric bank to a "process bank".

The global financial crisis has left banks with a severe confidence problem, as they are distrusted and sometimes even despised. If banks want to regain some social legitimacy and support the real economy to the benefit of all, they must innovate and try new and better ways of reaching, engaging and serving their customers.

(China Daily 02/23/2012 page8)