Commendation Award New role of banks as digital financial adviser

By Cha Jee-hong

Innovative technology is prompting “a big blur” in the world of finance, blurring the existing boundaries between financial service companies and IT companies.

Novel ways of paying services like Kakao Pay, Samsung Pay and Alipay, and emerging internet-only banks are examples of incorporating IT into financial services which have resulted in evolution of financial services that can be used without going through financial companies.

The new business platforms incorporating financial technology are changing the way finance is viewed and conducted. By using social media or online platform, customers can exchange money directly for a lower transfer fee. Also, social funding and investment have enabled customers to participate in financial services more actively than ever before. Because of these changes, customers’ preferences toward online finance services have increased.

To keep their dominant positions against the fast-growing financial services by non-financial companies, banks have been eager to adopt financial technology such as mobile applications and online banking services.

However, these digital banking services are limited to exactly the same services that are offered in bank branches whereas IT companies are innovating, continuously releasing new products and business models like peer-to-peer finance or crowd funding, enhancing customer experience in financial areas.

Although banks will not face a huge threat in the very near future, they will lose customers to non-financial companies in the long run. Thus, to remain competitive in the changing environment, banks need to introduce and adjust to a new financial platform with distinct features that digital banking can offer to bank users.

To improve competitiveness, banks should combine their banking technology and accumulated knowledge in finance in order to play a leading role as a digital financial adviser. Compared to IT companies, banks have solid customer relationships and more experiences in the financial sector.

Also, according to a Bain & Company report on digital challenge to retail banks, 72 percent of the respondents replied that customers considered personal banking advisers important, meaning that banks’ advice have considerable credibility to customers.

By using these strengths in digital banking services, banks can provide a new kind of experience to customers, different from what competitors can offer. Assuming their role as digital financial advisers will strengthen both customer loyalty and competitiveness.

Banks can become a digital financial adviser by developing a sophisticated system such as Personal Financial Management (PFM). PFM is a service that helps customers manage their assets, liabilities and cash flow by analyzing individual patterns.

For example, Mint.com which is an Australian online bank, manage customer’s loan and investment. They analyze customer’s asset portfolio and provide improvements helping customer to reach his or her financial goal. Since services like PFM gather and analyze data of customers, it will be easy to define the needs of customers and advise appropriate services to customers, which will bring more profit to the banks.

In order for banks to improve their business profitability as digital financial advisers, a totally new and different kind of services and products needs to be developed, ones that are specialized for an online platform like PFM. Since it is not possible to persuade customers in an online environment as much as one can do in face-to-face banking, services attractive enough to make customer buy online is essential.

While helping customers to manage their assets, banks should provide financial management services that customers can participate in their financial management.

Banks can gather customers who have the same financial goal and make them participate in community enabling them to communicate with each other. They can advise appropriate investment services to customers in community and give incentives as more people join that investment. In this way banks can provide both new experiences to customers and gather more customers through incentives and word-of-mouth effect.

Before initiating finance advising technology, there are two requirements that need to be satisfied. First, more investment on customer’s data management and analysis is important in order to understand customer needs. If banks analyze data incorrectly and fail to catch customer needs, having credibility in finance won’t be an advantage as an adviser.

Secondly, banks must ensure tight security especially when it comes to managing customer data. Security is another aspect of a bank’s credibility and being a leading digital bank means that it has leading security technology.

Technology disrupts the way traditional banking business has been done. In this situation, banks have been innovating technology by enhancing mobile and internet platform providing convenience and security. Being a pioneer in digital banking is critical to success in the fast-changing contemporary financial industry. By redefining their roles as personal digital financial adviser, banks can keep dominant positions against their emerging competitors.

Cha Jee-hong, 25, is a student at the University of Seoul’s School of Business Administration