Australian banks face a digital watershed moment
By Iman Ghodosi (pictured), Managing Director Australia and New Zealand at Backbase
The Australian and New Zealand banking landscape has undergone a profound transformation in recent years, driven by technological advancements, increased competition and evolving customer expectations. Legacy technology is currently preventing many banks from being able to adequately respond to these changes.
Traditional digital banking, while offering convenience and efficiency, often falls short in delivering personalised and engaging experiences. At best, digital banking keeps you invested in your legacy tech, and at worst, it adds new tech on top. To address these limitations, a new paradigm is emerging: Engagement Banking.
Engagement Banking is particularly relevant in Australia and New Zealand. Regional boundaries, including geographic and/ or demographic, previously prevalent in the mutuals sector in Australia and New Zealand have to an extent now been broken with the advent of digital, thereby driving competition. Furthermore, the broader banking sector has experienced significant consolidation which, in turn, is driving competition and increasing the need for differentiation through improved customer service. Achieving digitisation goals while remaining reliant on legacy systems is challenging and more complicated, particularly given the need to balance the cost of digital growth with the sector’s positive sentiment associated with maintaining a branch network.
The larger banks in Australia and New Zealand are prioritising investment in modernisation programs to systematically address their long ignored technical debt accumulated over many years due to their legacy systems and through their historical acquisitions. They are endeavouring to break the habit of layering newer technologies or introducing further point solutions on top of outdated infrastructure, which has in the past compounded their technical debt and increased system complexity. This approach may have provided short-term solutions but it limited their ability to innovate and deliver integrated, customer-centric engagement platforms.
On the other hand, many of the local small and mid-tier banks that rely on all-in-one, generic solutions from incumbent providers, face different but equally restrictive challenges. As they look to accelerate their growth, there is a growing realisation that these platforms often lack the flexibility and innovation needed to adapt to modern customer expectations, especially in digital engagement. These banks, constrained by systems prioritising core banking functionality while treating digital capabilities as secondary concerns, are realising that what was previously a small change to deliver seamless, personalised experiences to meet the demands of today’s digitally savvy customers, now require a larger version change.
The broader takeaway is that both large and small banks in these regions face significant technological barriers to creating effective engagement banking platforms, either due to the burden of legacy systems or the limitations of rigid, one-size-fits-all solutions. To overcome these challenges and so as to not repeat the past, executives need to think holistically and consider more transformative approaches, such as adopting cloud-native architectures, integrating flexible APIs, and leveraging modular, customer-focused digital platforms.
Banking executives need only draw inspiration from other industries that have successfully adopted a composable approach built on microservices and an API-first and cloud-native approach. This enables them to build flexible, scalable systems that can rapidly adapt to changing customer needs and market conditions.
Engagement Banking goes beyond the basic aspects of digital banking to focus on creating meaningful and personalised interactions with customers. It shifts the emphasis from technology to the customer experience, aiming to build lasting relationships and foster loyalty.
Engagement Banking is digital at its core, but more importantly, it’s customer-centric, modern, and forward-thinking. That’s the fundamental rift between this approach and digital banking, the umbrella term that, while common, means very little and offers even less, in the long run.
This approach recognises that customers are more than just transactions. They are individuals with unique needs and preferences.
The Benefits of Engagement Banking
The benefits of Engagement Banking are many and varied and one of the most significant is increased customer satisfaction. Satisfied customers are more likely to remain loyal to their bank and recommend its services to others.
Another benefit is improved operational efficiency. Engagement Banking can streamline operations and improve efficiency through automation and data-driven insights. This can reduce costs and free up resources for more strategic initiatives.
Engagement Banking can also deliver a competitive advantage. Banks that embrace the strategy can do this by creating superior customer experiences that differentiate them from competitors and attract and retain new customers.
The role of composable banking
At the heart of Engagement Banking lies the concept of ‘composable banking’. This approach involves a shift away from traditional, monolithic IT systems to alternatives comprising smaller, more flexible components.
A composable banking infrastructure can support the rapid introduction of new products and services while at the same time ensuring market-leading levels of customer service. Rather than being constrained by legacy systems, banks and other financial institutions can then improve their flexibility and responsiveness.
Key pillars of Engagement Banking
There are five key pillars that underpin a successful Engagement Banking strategy. They are:
- Customer-centricity: At the heart of Engagement Banking is a deep-rooted commitment to the customer. Banks must understand their customers’ needs, preferences, and behaviours to deliver personalised experiences that resonate with them. This involves leveraging data analytics and artificial intelligence to gain insights into customer behaviour and tailor interactions accordingly.
- Personalised experiences: Engagement Banking is about delivering experiences that are tailored to each individual customer. This involves offering personalised recommendations, proactive support, and relevant content that meets their specific needs. By understanding a customer’s goals and aspirations, a bank can provide valuable guidance and support.
- Seamless, omni-channel experiences: Customers expect a seamless experience across all channels, from mobile apps to physical branches. Engagement Banking ensures that customers can easily access their accounts, manage their finances, and receive support through their preferred channels. This requires a well-integrated platform that enables a consistent and cohesive experience.
- Proactive engagement: Instead of waiting for customers to initiate contact, Engagement Banking emphasises proactive engagement. Banks should reach out to customers with relevant offers, personalised advice, and timely notifications. This helps build trust and strengthens customer relationships.
- Data-driven insights: Data is a valuable asset in Engagement Banking. By leveraging customer data, banks can gain insights into their preferences and needs. This information can be used to personalise offers, improve products and services, and optimise marketing campaigns.
The future of banking
Implementing Engagement Banking will require a significant transformation for many banks. It involves investing in new technologies, rethinking organisational structures, and fostering a culture of customer-centricity.
However, the effort and investment is worth it as Engagement Banking is poised to become the dominant paradigm. By focusing on customer experience, personalisation, and seamless interactions, banks can build lasting relationships and drive sustainable growth.
Both opportunities and challenges
While Engagement Banking presents significant opportunities, it also faces challenges. Some of the key challenges include:
- Data privacy and security: Banks must ensure that customer data is collected, stored, and used in compliance with privacy regulations. Data breaches can have serious consequences for both banks and customers
- Legacy systems: Many banks are still reliant on outdated legacy systems that can hinder their ability to implement Engagement Banking. Modernising these systems can be a complex and costly process
- Cultural change: Adopting a customer-centric culture requires a significant shift in mindset for many banks. Employees may need to be trained and empowered to deliver personalised experiences
Despite these challenges, the benefits of Engagement Banking far outweigh the costs. By investing in technology, talent, and customer-centricity, banks can create a sustainable competitive advantage and thrive in the digital age.
Engagement Banking represents a fundamental shift in the way banks interact with their customers. By focusing on personalisation, seamless experiences, and customer engagement, banks can build lasting relationships, increase customer loyalty, and drive sustainable growth.
As the banking industry continues to evolve, Engagement Banking is poised to become the dominant paradigm for the sector.
