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Commercial banking 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. Surprisingly, this is not the case for commercial banking. The truth is that commercial bankers and lenders have been slow to embrace the change.
Due to its enhanced “relationship” with the client, the commercial banking segment believes that it does not need to invest in a digital experience for its business clients. However, 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 is expensive for commercial banking
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. It is important to consider digital transformation as an asset for your company and not an expense. 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. Ultimately, a bank’s payout 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 only needs to pay for actual usage of the platform. For example, here at MonJa, financial institutions only pay for loans that go through our portal.
Myth 2: Digital transformation is only a tool for B2C
Reality: Digital transformation is beneficial in all sectors and departments
Some commercial banking professionals believe that digital transformation is only meant for B2C aka retail lenders. But the question is that if business owners are using the latest financial technology for their personal banking and credit needs, why would they not expect the same for their business?
Commercial lenders have been slow to adopt a digital transformation. Commercial clients have been even slower to demand one. However, 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
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 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 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 that accompany lending software. These are much more effective in catching emerging risk issues in the portfolio on both an overall basis and on a case-by-case situation.
Myth 5: Digital transformation should be focused on the end client
Reality: Besides customers, the company’s internal environment is also considered while executing digital transformation
While helping customers is the primary goal of digital transformation, the journey does not end there. Transformation must also occur internally. In order to effectively serve clients with a digital offering, the company must carefully examine its own operational needs.
For example, the use of machine learning 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 disrupts existing commercial banking operations
Reality: Digital transformation is implemented in different phases
A common complaint against investing in digital is that it involves disrupting existing work. But this is typical corporate inertia. There will always be slight discomfort when anything new gets introduced. Commercial lenders must either disrupt their own operations now or be disrupted by Silicon Valley in the near future.
The truth is that rather than increasing the workload, digital transformation actually eliminates work by automating 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 the process.
Myth 7: There is no ROI 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 the 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 until now. The critical question is whether banks can afford to adopt a wait and see approach or if they must 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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