There is no question that digital transformation has been a long-term trend in banking.
However, innovation is not instantaneous. When faced with the obstacles the recent pandemic presented, bankers initially accelerated innovation and digital transformation on the consumer side, thanks to a broad scope of impact and the technology available at the time to streamline human-to-human interactions.
Now, as easy-to-use technology that automates complex interactions between human and machine and machine-to-machine (M2M) interactions becomes more readily available, the banking industry should consider how it can transform their own business and the banking experience for their business clients.
The First Wave
Why were consumers first served in the early days of the pandemic? Because there are often a lot of consumers to serve, with similar use cases and needs. When many account holders share the same finite problems, it can be easier for banks to commit personnel and financial resources to software that addresses those needs. The result is the capability to solve a few big problems while allowing the bank to effectively serve a large base of consumers with a mutual need, generating a quick and viable return on investment.
The first wave of digital transformation in banking concentrated on consumers by focusing on digitizing human-to-human interactions. They created an efficient process for both the bank employee along with the customer end-user, and then quickly moved to enable human-to-machine interactions with the same outcome. This transformation can be seen in previous interactions between consumers and bankers, like account opening, check deposits, personal financial management, credit and debit card disputes and initiating payments — all of which can now be done by a consumer interacting directly through a digital interface. This is also known as human-to-machine interactions.
In contrast, business interactions with banks tend to be more nuanced due to regulations, organizational needs and differences based on varying industries. For instance, banks that manage commercial escrow accounts for property managers and landlords, municipalities, government agencies, law firms or other companies with sub-accounting needs frequently navigate various security protocols and regional and local compliance. Unfortunately, these complexities can slow innovation, like business online account opening that is only now coming to market decades after consumer online account opening.
The Next Wave
Automating these business interactions was once thought to be too large of an undertaking for many banks — as well as software companies. But now, more are looking to digitally transform these interactions; software development is easier, further advanced and less costly, making tackling complex problems achievable for banks.
This will mark the next wave of digital transformation in banking, as the potential benefits have a greater effect for businesses than consumers. Because profits for each business client are much higher than consumer accounts, banks can expect strong returns on investment by investing in value-add services that strengthen the banking experience for business clients. And with so many niche business verticals, there is opportunity for institutions to build a strong commercial portfolio with technology that addresses vertical-specific needs.
While the ongoing, first wave of digital transformation is marked by moving human-to-human interactions to human-to-machine, the next wave will lead to more machine-to-machine interactions. This is not a new concept: Most bankers have connected two separate software systems, and have heard of M2M interactions through discussions about application programming interfaces, or APIs. But what may not be clear to executives is how these M2M interactions can be extremely helpful when solving for frustrating business banking processes.
For example, a law firm may regularly open trust and escrow accounts on behalf of their clients. Through human-to-human interaction, their processes are twofold: recording client information in an internal software system and then providing the necessary documentation to their bank, via branch visit or phone, to open the account. They need to engage in additional communication to learn the balance, move money or close the account.
Transforming this to a human-to-machine interaction could look like the bank providing a portal through which the firm could open, move funds and close the account on their own. While this is an excellent improvement for the law firm and bank, it still requires double data entry into internal software and banking software.
Here, banks can introduce machine-to-machine automation to improve efficiency and accuracy, while avoiding extraneous back and forth. If the bank creates a direct integration with the internal software, the law firm would only need to input the information once into their software to automatically manage their bank accounts.
The digital transformation of business banking has arrived; in the coming years, machine-to-machine automation will become the gold standard in the financial services industry. These changes provide a unique opportunity for banks to help attract and satisfy existing and prospective business clients through distinctive offerings.