The advent of digital channels in the last decade has seen electronic business reroute the trajectory for many industries and given way to brave new leaders in several sectors. We are at the cusp of a new era of shifts from traditional business models to disruptive, digital led ones. However, with this change comes a need to be bullish in focusing on the customer. This is non-negotiable as the competence of the digital business is in customer acquisition at scale, supported with innovations in customer and brand engagement.
This digital transformation is particularly emergent in the banking industry, where competition is rife among over twenty banks, grappling for increased market share and revenue. While there are clear top tier players, some of whom are also top innovators, the lender who wins in every fiscal year is always the one who acts proactively and makes the right bets. In the past few years, one thing is sure, the banks who have made big bets on technological and digital innovations have led the pack.
In this world of financial services, there has been more and more demand for growth driven innovations, driven by customers’ needs and problems to be solved. Banking as we know it today is confronted by the emergence and necessity of digital banking in financial services in delivering the vast business challenges that emerge every day. In developed economies, Fintechs have posed a threat to major and more established banks, as their speed to market, innovation, and digitization of banking solutions draw a large following – due to their ability to make everyday banking easier and more accessible.
This is beginning to happen in Nigeria as well, which is why many of the banks have refused to be left behind and they have over the years focused heavily on digital innovation, with increased adoption and investment in financial technology, as a strategy to drive competitive advantage and drive more value. Digital banking brings a world of opportunity to tackle crucial challenges in access to finance, a young and internet active population, and an increasing focus on customer experience to cater to a growing middle class.
In 2018, the many investments paid off heavily as Nigerian banks generated total revenue of about N124.5 billion from electronic transactions in FY 2018, with an audit of 11 banks showing that revenue from e-transactions in the banks increased by 43 percent year-on-year. Suddenly fortunes are changing and the wheel of profit is spinning faster and faster, more banks follow suit throwing money at technology and expecting returns akin to their peers.
It is an exciting new world of opportunities for banks! But is it?
In December 2019, the apex bank, the Central Bank of Nigeria (CBN) presented anew regulation showing a downward review for electronic banking transaction charges for banks in Nigeria. While this may be good news for the customers, it will have compounding implications for the revenue of the banks, who will have to find ways to mitigate regulatory risk in order to still deliver on corporate goals.
It would seem like the CBN is on a campaign to truncate the returns these banks are enjoying on their financial technology investments, however, the apex bank maintains a new mandate is in a bid to enhance flexibility, transparency, and competition in the Nigerian banking industry.
Now the bank executives must go back to their boardrooms to devise a way to win despite seemingly unfavorable regulation.
At Terragon, we have decided to weigh in on the situation, as financial institutions constitute a core vertical that we service. Our findings show that many banks are troubled by the new development and fear for their performance, yet a few are confident as they already made even smarter financial technology investments to secure future revenues, almost as if they had a glimpse into the regulatory future.
As thought leadership is one of the pillars of our brand foundations, we have decided to offer fresh ideas and a new perspective on how to approach the growth challenge at hand in the financial services sector.
Here are a few themes that have emerged from our deliberations.
Banks in Nigeria should work on and invest in these points in order to provide healthy revenue opportunities and take advantage of a strongly built and sustainable growth strategy.
Growth in the last few years has been driven in large part by digital channels such as USSD and Internet Banking, however, these opportunities have not been fully exploited and optimized by the banks. Money is still being left on the table. The big question then is, how do banks fully leverage their existing assets, to drive optimized growth and performance, hedging off uncertainty. Digital technology and big data/analytics are poised to shake up the financial services industry like never before. Why not leverage it for growth in these times?
We identify five main areas that hold growth opportunities –
- Grow beyond the norm into disruptive systems with Automation: While regulation seeks to promote healthy competition and have a level playing field, serious players can deepen competitive advantage, by deploying intelligence across the critical functions, to have deeper understanding of customers, improve customer experience and drive a more personalized journey, thus enabling growth at scale.
- Extend value across the customer journey using Personalised Banking: While Private banking targets and caters to high-value customers, Personalised banking can become even more valuable when delivered to retail customers the right way. Personalized banking aims to truly know the customer end to end: who they are, where they are, what they want, and how they live their lives. If we do not know and understand customers, we will not be able to provide real value to them, losing revenue stream along the way.
- Expand and diversify your revenue through Personalised Products: With real-time access to customer insights, the path to designing products to meet specific customer needs and motivations will become shorter. Now, product innovation can be nimbler and better deliver on business objectives with measurable returns to business and a happier, more satisfied customer. This can deliver healthy product portfolios yielding good revenue streams to the business bottom line
- Unearth actionable consumer insights using Predictive AI Marketing: It is more important than ever for marketers to better understand and engage with their (prospective) customers across the funnel, from prospecting to engagement to the acquisition, all the way to brand love and loyalty. The banks that will win in 2020 will have to prioritize real insights about their customers – understanding their needs, wants and patterns, which is critical to building real customer relationships and by extension shareholder value.
- Increase customer lifetime value with the smarter acquisition: Value extracted from most customers has continued to dwindle over time. So that marketing has become more expensive and with the cost of acquiring new customers further increasing, the bottom line suffers. To drive growth, banks must optimize marketing investment and learn to work smart, not hard. And this begins with knowing what the customer really wants, followed by smarter targeting.
How then can one know what exactly what customers want, where and how to target them. The only way to do this is by smarter, personalized targeting at scale, using customer data
Banks will have to determine how to go about their growth agenda, as well as which path to take to, and there isn’t a one-size-fits-all answer.
In our work with FSIs, the majority of them have many investments aimed at driving growth, some of which include elements of these five levers. The current deployments are useful to answer the question of where to double down efforts. Nevertheless, intelligence at scale is critical to be delivering on the broad, multi-layered growth opportunities that exist within banks.
There are a number of questions banks need to deeply consider:
- What new opportunities for growth align with currently available resources and strategic positioning?
- What growth avenues do we currently have the resources to explore
- What skills, competencies or manpower structures should exist as we seek to explore these new growth opportunities?
- What are the systems, structures, and processes put in place to manage new growth? Should we use existing structures, set up new units or outsource altogether?
- How do we allocate resources, measure value and justify investment into new growth areas?
Irrespective of the growth areas banks choose to invest in, they must invest resources in new technologies and capabilities that allow for scaling personalized customer intelligence using machine learning, artificial intelligence, data science, advanced data analytics. A laser focus on what really matters and will deliver measurable growth is important for success in 2020.
The way we go about it in Terragon is usually to outline clear expected outcomes and then collaborate with banks to identify and activate critical resources and systems that will deliver value quickly to achieve a data-driven growth culture. It is not always easy, but pulling all the critical levers and managing influencers go a long way in catalyzing the process.
It is important for banks to also take ownership of the growth process, and to act with clarity, precision, and speed, knowing it is those who take action, even and especially in times of great uncertainty that win the market