Iman Ghodosi, Managing Director Australia and New Zealand, Backbase, says that by investing in technology, customer experience and operational efficiency, banks can unlock the full potential of the ‘banking flywheel’.
The banking landscape in Australia and New Zealand has seen significant transformation in recent years, propelled by technological advancements, rising competition and changing customer expectations.
Traditional regional boundaries, whether geographic or demographic, that once characterised the mutuals sector in Australia and New Zealand have been largely dissolved by digital advancements, fuelling greater competition. Additionally, extensive consolidation across the broader banking sector has intensified competitive pressures, heightening the need for differentiation through enhanced customer service.
In this new landscape, innovation and customer-centricity are paramount. However, outdated technology is holding many banks back from effectively adapting to these shifts.
To navigate this dynamic environment, banks must strike a delicate balance between driving business value and delivering exceptional customer experiences. This delicate interplay, often referred to as the ‘banking flywheel effect’, is essential for sustainable growth and long-term success.
As an example, many Australian and New Zealand banks have in recent years undertaken lengthy core banking transformation programs of work costing in the tens of millions of dollars, often more.
While core banking transformations – focused on upgrading legacy platforms – are crucial for operational efficiency, risk management, and seamless back-end processes, they often neglect the front-end, customer-facing experience. In today’s convenience-driven world, where digital engagement and user experience are paramount, it’s essential for banks to complement their core system upgrades with modern, flexible digital channels.
Customers expect intuitive, real-time services through web, mobile and other digital interfaces.
Without robust and agile digital solutions, even the most efficient back-end processes may fall short of delivering the customer-centric experience that is becoming the competitive differentiator for banks. Both internal efficiencies and customer-facing innovation need to evolve in tandem to meet the expectations of today’s consumers.
The banking flywheel is a conceptual model that illustrates the interconnectedness of various factors that contribute to a bank’s overall performance. At its core, the flywheel represents the momentum that a bank can build by consistently investing in technology, customer experience and operational efficiency.
When these factors are aligned and working in harmony, they create a self-reinforcing cycle that drives growth and success.
The banking flywheel consists of two primary components:
- Customer value: This side of the flywheel represents the bank’s ability to deliver value to its customers. It encompasses factors such as customer satisfaction, loyalty, and advocacy. By investing in customer experience initiatives, banks can enhance their customer relationships and drive revenue growth.
- Business value: This side of the flywheel represents the bank’s financial performance and profitability. It includes factors such as revenue growth, cost efficiency and market share. By optimising operations and leveraging technology, banks can improve their bottom line and strengthen their competitive position.
While both sides of the banking flywheel are important, their true power lies in their synergy. When the customer value and business value sides work together, they create a self-reinforcing cycle that can drive significant momentum.
By investing in customer experience initiatives, banks can increase customer satisfaction and loyalty, leading to higher revenue and market share. This increased revenue can then be reinvested in technology and other initiatives to further enhance the customer experience, creating a virtuous cycle.
To effectively harmonise the customer value and business value sides of the banking flywheel, banks should consider the following strategies:
- Invest in technology: Technology plays a crucial role in driving efficiency, improving customer experiences and enabling innovation. By investing in modern technology solutions, banks can streamline processes, reduce costs and offer personalised services. This includes areas such as digital banking, artificial intelligence, and data analytics.
- Prioritise customer experience: Customers are at the heart of the banking flywheel. Banks must focus on delivering exceptional customer experiences by understanding their needs, preferences and pain points. This can be achieved through personalised interactions, convenient channels and proactive support. For example, banks can leverage data analytics to identify customer preferences and tailor their offerings accordingly.
- Optimise operations: Efficient operations are essential for maximising profitability. Banks should continuously review and optimise their processes to identify areas for improvement. This may involve automation, streamlining workflows and reducing costs. For instance, banks can use robotic process automation (RPA) to automate repetitive tasks and improve efficiency.
- Foster a culture of innovation: Innovation is key to staying ahead of the competition and meeting the evolving needs of customers. Banks should create a culture that encourages experimentation, creativity and a willingness to embrace new ideas. This can be achieved through initiatives such as hackathons, innovation labs, and employee training programs.
- Measure and analyse performance: To track the effectiveness of the banking flywheel, banks should establish key performance indicators (KPIs) and regularly measure their progress. This data can be used to identify areas for improvement and make informed decisions. For example, banks can track metrics such as customer satisfaction, net promoter score (NPS) and return on investment (ROI).
While the banking flywheel offers significant potential, it is not without its challenges. For example, banks may face obstacles such as legacy technology that can hinder their ability to implement modern technologies and deliver exceptional customer experiences.
Data privacy and security can also prove challenging. The increasing use of technology and data creates new requirements for banks in terms of data privacy and security. Banks must ensure that customer data is protected and comply with relevant regulations.
Also, there are changing customer expectations that need to be considered. Customer expectations are constantly evolving, and banks must adapt to stay relevant. This may require significant changes to business models and processes.
To overcome these challenges, banks must invest in modernisation initiatives, implement robust data security measures, and continuously monitor and adapt to changing customer needs.
By harmonising the customer value and business value sides of the banking flywheel, banks can create a sustainable path to growth and success. The flywheel effect can drive continuous improvement, enhance customer relationships and strengthen the bank’s competitive position.
By investing in technology, customer experience and operational efficiency, banks can unlock the full potential of the banking flywheel and thrive in today’s dynamic market.