Humans Set the Boundaries of Digitalization Themselves

December 08, 2017


The digitalization of banking services is now fully underway. Robo-advisors and online onboarding offer tangible opportunities for digital business. However, financial institutions should be careful not to ignore human behavior as part of their digital transformation strategy. “Real” client relationships are indispensable for sustainable success, and positive customer experiences still play a crucial role.

Fintech, blockchain, online onboarding, and robo-advisors. Financial services are no exception when it comes to digital transformation. Much of what was once pure fiction is now already on its way to the marketplace.

What is the impact of technology in banking?
Without question, the diversity of platforms will also lead to new models, new rules, and new realities. This is why the challenges presented by digital innovation are just as significant as the potential benefit – yet these challenges are too often ignored. The debate at many banks has centered on efficiency measures, cost-cutting, and workforce reduction. Anything that can be automatized, virtualized, or robotized has already been digitized or will be soon. In this relentless transformation, man has become an obstacle. Humans are simply too slow, too unstructured, and follow their emotions and gut feelings too often.

Risks of digitalization for banks
Arguably, it is these human “deficiencies” that hold the key to successful client relationships. People remain true their own patterns of thinking and behaving. They are the product of human evolution and are often anchored in us genetically. In these behavioral patterns, social interactions play a major role. Here, even the most sophisticated algorithms are doomed to failure, as human thought processes, emotions, and unstructured spontaneity in buying decisions are unfathomable to them.

How do bank customers behave?
Like any other service provider, banks must think carefully about how they want to manage and optimize the critical interface between clients and client advisors in the future, otherwise they will fail. Clients rarely act in structured and predictable ways. For example, after a large inheritance, advisors are often expected to explain how such a fortune should be properly invested. A robo-advisor would not be capable of answering such a complex, multidimensional question adequately. In most cases, a human advisor has to first identify the client’s individual needs, wishes, and goals.

This illustrates that the modern banking business has moved beyond simply offering products. Clients expect holistic solutions for topics such as pension planning, lending, real estate financing, and business startups. Only after it has been determined where the client’s personal journey is headed can digital helpers come into play. E.g. by setting up an appropriate portfolio. In these areas, digital tools make a lot of sense, as they make decisions faster, more efficiently, and more rationally than humans.

What are the limits of digital tools in banking?
Furthermore, key factors, such as age, income, occupation, current family and financial status, as well as long-term financial obligations, e.g. mortgages or children’s education, can be determined simply and conveniently using online tools. However, genuinely individualized advice that will hold true over the long term requires much more detailed information. Soft facts, such as life plans, dreams, fears, personal expectations for the future, and personal risk tolerance all play a critical role. These soft facts are unstructured and irrational and therefore not (yet) concrete enough for machines to process.

Three pillars of digital transformation in banking
The human aspect is clearly what defines the boundaries and determines the rules that direct digital transformation initiatives. Not taking human psychology into account will make failure inevitable. Digitalization can solve many problems, as machines are fast, reliable and efficient. But when it comes to interpersonal relationships, skills like social and emotional intelligence, creativity, critical thinking, and the ability to offer tailor-made solutions are much more important. Banks should therefore take into account the three main pillars of digital transformation:

  • Establishing and maintaining an omni-channel interface with the client combined with behavioral monitoring
  • Designing a “matching personality” between the client and the client advisor
  • Implementing a digital tool on the client side

An omni-channel interface combined with behavioral monitoring
Digital tools are not supposed to replace client advisors; instead they should support the process of building a robust, trustworthy, and sustainable client relationship. In scenarios such as these, transparency is key. The whole client relationship has to be mirrored in an intelligent software solution. With the help of suitable tools, the client data generated has to be analyzed in a thorough and ongoing way. In addition, effective behavioral monitoring has to be integrated into the system, as touch points between clients and client advisors continue to decrease. Thanks to behavioral monitoring, client advisors can detect quickly and efficiently when personal contact is required. Furthermore, this kind of data analysis can help to identify up- und cross-selling potential.

How can banks match personalities?
As digital transformation leads to a decreasing number of touch points between the client and the client advisor, the remaining points of contact have to match even more closely. The procedure is not unlike dating platforms. Instead of matching clients and advisors according to random criteria, such as the first letter of the client’s name, the key criterion needs be whether the individuals’ personalities are highly compatible. We all know that having similar hobbies, lifestyles, and educational background is the quickest and most efficient way to prepare the ground for a trusting relationship. Moreover, recent research in this field has shown that the better advisors are matched with clients, the lower clients’ price sensitivity is and the more open they are to buying additional products and services.

Digital tools on the client side
Just as client advisors need the right digital tools, clients also need digital tools to help them conduct their everyday banking activities. These solutions must be secure, fast, and flexible in where and when they can be used. Most importantly, they have to be extremely simple. Unlike car configurator tools that can be used to select a new family car, comparable tools for banking, pension planning, and financial transactions are seen as more of a necessity than a form of entertainment. This makes simplicity and intuitive handling even more crucial.

How advanced is digital transformation in banking?
There is still a long way to go on this topic. Traditionally, banks operate with 100 to 150 products. Out of these, only six to ten are used effectively by the majority of clients. In addition, our statistics show that for online solutions, the dropout rate increases by 50 percent with every additional click. Here, modularized and package-based solutions can help. Although they may not be appreciated to the same extent by all clients, they have certain benefits that cannot overlooked. The buying decision is made so much easier by offering a solution that covers all clients’ needs. Buyers can reduce it to the specific functionalities that are essential for them. This solution also offers the maximum benefit to the provider.

Fundamentally, the most important aspect of the tool is that should minimize the mental effort that the client needs to make during the buying decision. When this happens, the chances are higher that clients will manage to purchase all the services they really need. And most of the time, even a little bit more than that. The calming effect of having found a comprehensive solution increases the client’s satisfaction. Trust in digital tools, the bank, and their personal advisor increases along with it.

This article was originally published in GI Geldinstitute in October 2017.