The Future of Banking: Personalized, Predictive, Optimized and Powerful

Everybody wants to know the future but a few strive to understand and capitalize. History calls them "winners". Top business schools are developing deeper understandings of how a few companies are able to sustain for generations. Studying these successful companies gives us deeper insights to decode their unique DNA. Scholars are finding answers to tough questions- how sustainable companies are formed? How quickly these companies align with rapid changing forces of change. How to avoid disruption?

Four forces will shape success for banks: Hyper personalization, predictive AI algorithms, network optimization and robust customer relationship management(CRM) systems.

Hyper Personalization

How many branches does your bank have? Seems a very familiar question?. Your answer is about to change forever. Number of branches is not going to some number of outlets. You will say: number of branches equals customer base. Sounds interesting!! Hyper personalization is not a thing of the future. With fifty customizable features, there are 1,100 trillion possible combinations. Banks are working to tweak over one hundred features so you can tailor make the look and feel of your bank. There you go! it's your own bank. You can do a lot of interesting things as you dig deeper into insights. While customers are developing their own bank, banks are learning about their customers at an unprecedented pace. The spectrum of customization is very large - from a vanilla personal loan to daylight liquidity.

Predictive AI Based algorithms

Rise of artificial intelligence(AI) is the renaissance of the computing world. In the last three decades, computing power was instrumental in aiding human judgement in their lending activities. Recent developments in AI are taking the driver's seat in enhancing judgemental capabilities of users. Fully programmed AI equipped lending modules can aid in effective credit underwriting. Big question is if these algorithms help decision making in a more efficient manner or merely remove human bias. Data will tell about delinquencies made in comparison between human driven decisions and AI decisions. Banks need to take full advantage of these available algorithms(or write one themselves) to identify untapped opportunities in their vast portfolios.

Network Optimization - Due to higher digital penetration and relatively high literacy rate, foot fall in branches have significantly reduced in urban branches. Occupancy cost of branches is a rising phenomenon. Payments have been fully transferred to alternate distribution channels(ADCs- ATMs and IBFT/Raast). What remains in branches? Customer acquisition, lockers and cash deposit. Cash in circulation(at PKR 8.1 T) is about to witness a declining trend in developing countries. One might notice a very interesting trend - 13% of the OTC transactions represents 87% of the value) in Pakistan. Approximately 70% of the Net Interest Income(NII) is eaten by administrative expenses. Banks are realizing that network optimization holds the key to unlock value.

Powerful CRM

These forces are interdependent and built on solid foundations of CRM. Robust CRM is foundational to develop strategies for other forces. Most of the industry players lack customer profitability models. This is primarily due to silo based IT systems. One of the primary goals of developing robust CRM systems is to develop valuable insights. Data is new oil and it has to be consolidated in one well.

Banks have to adopt and align with these forces in order to sustain challenges of the future.

Time is running out. Once again, we are living in a time where three months is "long term".