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Commercial banking sector is evolving continuously
The great recession was a major body blow. The subsequent rise of fintech lenders, especially in the retail segment, has meant that digital transformation is no longer a question of value addition but of survival. But not in the case of commercial banking. The truth is that commercial bankers and lenders have been slow to embrace the change.
Due to an enhanced element of “relationship” with the client, commercial banking segment believes that they don’t need to invest in a digital experience for its business clients. Nothing can be farther from the truth. The following lists the common misconceptions that commercial banks may have about digital transformation and the reality of these myths.
Myth 1: Digital transformation in commercial banking is expensive
Reality: Pay as you go model
Commercial banks believe that digital transformation is expensive to initiate. First of all, organizations should follow a strategic approach. Consider digital transformation as an asset for your company and not an expense. Also, there are multiple business models for digital transformation that do not require a major up front investment. SaaS companies (like MonJa) do not require a major expense at the start. The bank’s pay out only increases as it scales the digital operations. This is a win-win as the lender does not have to worry about ROI from day one. It needs to pay only for actual usage of the platform. For example, here at MonJa, financial institutions only pay for loans that goes through our portal.
Myth 2: Digital transformation is only a tool for B2C
Reality: Digital transformation is beneficial in all sectors and in all departments
Some commercial banking professionals believe that digital transformation is only meant for B2C aka retail lenders. But the question is that if a business owner is using the latest financial technology for his personal banking and credit needs why would he not expect the same for his business?
Commercial lenders have been slow to adopt. And commercial clients have been slower to demand a digital transformation. But waiting for new startups to disrupt this last standing bastion of traditional lenders is counter-productive.
Myth 3: Exhaustive training is needed for digital transformation of commercial banking
Reality: Any new system requires proper training to ensure the efficiency of employees
Whenever we implement a new system in our organization (tech oriented or not), we need to give the team sufficient training and backup support for adoption. Ultimately, digital transformation is all about restructuring your organization so as to ensure the use of advanced and up to date technology for performing various tasks.
Moreover, even the most advanced systems are investing a lot of effort into UI and UX to ensure higher uptake from the rank and file employees. So a technology that needed weeks to learn is now structured over weekend training. This has resulted in a seamless transition from one system to the other.
Myth 4: Digital in commercial banking is insecure
Reality: Digital transformation actually helps in risk management
Going digital will always involve some additional risks. But investing in a robust digital system should shield the commercial bank from any so-called “digital issues”.
More critically, the bank is missing out on risk management and compliance features of lending software. And these are much more effective than humans in catching emerging risk issues in the portfolio on both an overall basis and on a case-by-case situation.
Myth 5: Digital should be focused on the end client
Reality: Besides customers, the company’s internal environment is also considered while executing digital transformation
Although customers are the most critical part of a digital transformation but the journey does not end there. Transformation should ideally be started internally. A holistic approach should be followed. You first need to look at the operational needs of the company before you venture out to serve the clients with a digital offering.
For example, the use of advanced technology, like machine learning and analytics. Use of ML and analytics can help in improving staff efficiency, reduce the regulatory prep time and also monitor aspects of decision making. None of this has a direct impact on a customer but helps the commercial bank cut down on non-core tasks and expenses.
Myth 6: Digital transformation will disrupt existing commercial banking operations
Reality: Digital transformation is implemented in different phases
A common complaint against investing in digital is that it will involve “disrupting” existing work. There will be slight discomfort when anything new gets introduced. But that is typical corporate inertia.
Commercial lenders can either disrupt current operations on their own or Silicon Valley can do it for them in the near future. The truth is that rather than increasing the workload, digital transformation will actually eliminate work because of the automation of manual tasks. Here, at MonJa, our goal is to “preserve” your organization’s underwriting workflow and templates, while helping you automate and streamline the most tedious and time-consuming parts of it.
Myth 7: No ROI for investing in digital for commercial banking clients
Reality: A strong digital experience will improve NPS and power cross selling
The biggest hurdle for investing in digital is the age-old question: where is the Return on Investment. But measuring ROI on digital is now not that complicated. Ask your vendor to showcase how the software will generate quantifiable value for the organization. A genuine player will be able to do so.
Digital not only improves customer engagement and satisfaction but also allows you to cross promote other fee generating services on auto-mode. Being able to monetize an existing relationship is now a science thanks to digital capabilities of new age software.
Commercial Banks have been slow in investing in digital transformation of their operations. Surprisingly, commercial customers have been sanguine about the slow adoption approach till now. The critical question is can the bank afford to have a wait and see approach or should they learn from their retail banking counterparts and start on the digital journey before it is too late.
Commercial banking is a trillion dollar market and with retail crowded with me-too fintech lenders, startups are itching to penetrate the commercial lending market. Commercial Banks who are ahead of the curve will benefit in the long run by being able to defend their turf and should also be able to generate enhanced returns for all stakeholders involved.
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