Prevent digital headwinds from shaking consumer trust

By Prakash PattniManaging Director, Financial Services Digital Transformation, IBM

Jhe financial services industry is undergoing major restructuring. Old fixed analog certainties are replaced by nimble and flexible digital alternatives. Unfortunately, the inevitable companion of change is uncertainty, which, in turn, can dislodge trust, the cornerstone on which the financial services industry is built. So how can the industry implement a massive digital transformation without hurting its relationships with customers and regulators?

At the start of the digital journey, there was an understandable fear of the unknown; from a consumer perspective, we don’t hear much about it anymore from the digital native generation. They are willing to try, unlike older customers, who are still a little wary of some of the new banking services.

We are all becoming digital natives

Of course, from the bank’s perspective, they want everyone to act like a digital native because it would make it a lot easier for them, but a lot of people still like to pick up the phone.

However, for now, providing a range of channels – from fully automated smartphone apps to physical branches – is still necessary, although the resulting transactions are all processed equally behind the scenes. For banks, this means developing and providing services that can evolve to best meet the needs of their customers; over time, this will undoubtedly move away from personal interactions for all but the most complex financial transactions.

We’re not there yet — I think we’re still many years away — but the time will come when the old patterns of interaction finally fade. Not everyone is an early adopter, but people are already changing their behaviors, and that direction will continue. For banks, managing this process will be key to maintaining trust during the transition.

Take a hybrid cloud approach

From the bank’s point of view, everything looks quite different. They realize that things are getting much more complicated than many had first assumed. The “everything in the cloud” approach is becoming more balanced, and so we are seeing a more hybrid approach emerging.

Regulators also acquire new knowledge and therefore they ask much more difficult questions; they’ve seen what can happen when things go wrong, which is helping the transition to hybrid solutions. While consumers may be more confident, banks and regulators are increasingly vigilant about rolling out next-generation digital services.

Take advantage of the benefits of digital

At the heart of the digital transformation of the financial services industry are two drivers: growing customer demand for new types of service delivery and a desire to maximize the revenue opportunities this offers. Large institutions are already seeing a reduction in some of their traditional revenue streams as new market entrants implement embedded finance as part of their offerings.

Banks are therefore turning to the fintech (financial technology) community to help them improve their agility in delivering next-generation services. They also reach out to established partners, such as IBM, for help with automation and ways to safely and efficiently push back some of the new entrants to the market. It is no longer just questions about the cost of infrastructure; it’s about how tools like AI (artificial intelligence) can be successfully deployed to improve customer relationships and build trust in a time of accelerated change.

During the COVID-19 pandemic, many physical channels went fully online as banks had to massively expand their mobile and online channels. Banks have seen success with this approach, and this momentum can be maintained if the right approaches and technologies are adopted.

Much of this migration has been made possible by the wireless Internet, which is about to see a major boost with the deployment of 5G infrastructure. Its faster Internet speeds, lower latency and wider bandwidth provide a rich set of self-service features, such as sensors in homes, vehicles and offices, which can create insurance offers in highly personalized real-time. However, harnessing the potential of 5G will require careful thought, as users can remove an unpopular app as easily as any other type of download.

Another technology banks will need to embrace is quantum computing, not only for the exponential processing power it can provide, but also for its ability to enhance security. In a digital banking world, quantum’s ability to detect and deflect cyberattacks before they cause damage will be critical to maintaining trust.

The importance of relationships

Despite all the talk of technology, people still value relationships – some will stay with their bank for 30-40 years. While these relationships build trust over time, it is something that could be damaged or lost in the current evolution of financial services if mistakes are made.

IBM has been around for over 100 years and our technologies have been embedded in banks for about half of that time. But the same basic principles around trust apply; we are a responsible partner with proven and reliable solutions. And above all, we are not looking for the same data as banks: our only role is to provide the solution that the financial services sector needs to compete in an increasingly fragmented digital environment.

Even then, things don’t always go as planned. At IBM, we’re focused on technology – partnering with us gives the financial services industry access to best-in-class. All of this combines to create peace of mind. For example, we are also at the forefront of initiatives such as quantum safe technologies. The US National Institute of Standards and Technology (NIST) recently announced the first quantum-safe cryptography protocol standards for cybersecurity. IBM participated in the development of three of the four encryption methods selected from a set of 69.

Building an environment in which everyone can trust

The skills and expertise required to bring everything together seamlessly in a hybrid environment exist, but in an ever-changing environment, there is always more to come; people keep building and creating new solutions, which can create vulnerabilities. However, the financial services industry must stay one step ahead of bad actors to ensure that trust is maintained for both banks and their customers.

Fortunately, by working with a trusted partner with a proven track record of developing and delivering reliable and scalable solutions, it is possible to meet the varied needs of the global financial services ecosystem. Trust is easily lost, costly and difficult to regain. The right investment today will help ensure that there will not be a disadvantageous trust deficit tomorrow.

ABOUT THE AUTHOR

Prakash Pattni is Managing Director of Financial Services Digital Transformation at IBM EMEA. Prakash brings financial services experience gained in technology and finance and has led numerous initiatives including public cloud transformation and the implementation of agile product models.

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