Digital transformation for financial institutions

Thursday November 18 2021
PIC MOBILE BANKING

By Benjamin Mkwizu

In the recent past, we have seen a shift of customer expectations when it comes to the delivery of banking services. There is now a lot more appreciation and uptake for customised products accessible through a diverse range of delivery channels. The younger demographic is more inclined to use portable devices to access their banking services. Welcome to the “anytime – anywhere” era of the banking world!

As many banks in Tanzania were riding the wave of the Covid-19 pandemic, operational and workforce agility was key (and still is) in ensuring sustainable service delivery and profitable business growth. In my interactions with many banking executives in Tanzania and East Africa, I noticed that many had to think on their feet on best ways to reinvent their organisational ways of working so they can continue to serve their customers; and notably some were more successful in this venture than others.

So: how does all this affect the strategic direction banking institutions in Tanzania are taking? Most of the industry players are relooking at enhancing delivery of customised/personalised services through a simplified and convenient yet secure means which is also accessible by many. Imagine, Tanzania has over 50 million registered mobile phone numbers, with 49 percent internet penetration rate. Granted, a majority of us have registered multiple phone numbers; still, this statistic presents a huge opportunity for financial inclusion which banks’ executives cannot afford to ignore.

So, what have early adopters been doing to remain competitive and create an edge in the market? I would highlight the following “Big Five” key considerations: (1) customer-centricity, (2) digital strategy, (3) data analytics, (4) omni-channel,; and, (5): diversification (product/portfolio).

A customer-centric approach is paramount for banks with customer obsession becoming an ever increasing area of focus. Customer expectations are being influenced by their experiences outside of banking such as luxury retail, service industry and technology. At the same time - and a bit oblivious to many customers - specific data regarding customer preferences and their spending patterns, mostly gathered from social media/digital footprint and digital payment platforms is a key ingredient in customising financial products. Many banks are now looking at effective ways to simplify customer journeys through automation and self service solutions.

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Although customers look for digital ease, human support and interaction has an influence on positive customer experience. For routine transactions, customers choose self-service channels but for other tasks they continue to rely on bank staff. The balance between digital efficiency and human support is crucial in delivering efficiency and building strong relations. Customers remember the bank’s representative more than any other factors and expect a financial solution and experience that’s tailored to their needs

Digital Strategy is a key driver given a background of technology and innovation increasingly taking the center stage in driving the business agenda. Chief Information Officers (CIOs) are now strategic partners of the business and an integral part of the decision-making process. This calls for an alignment between the overall strategy of the bank and the digital strategy. Perhaps this is the time where many banks have had firsthand experience of the reliability of their technology systems in supporting core operations being put to the test as banks embraced virtual ways of working.

Emerging technologies and remote ways of working inherently increase banks’ cyber-attack surface. Simply put, the bank is opening up its IT environment to external parties to facilitate seamless information sharing and collaboration. This is a dream come true to hackers and hacktivists; no wonder cyber risk is now a top boardroom agenda. Banks should remain vigilant in developing cyber risk management skills and invest in relevant tools in order to stay ahead of the game. You cannot safeguard all your assets when it comes to cyber security! It is important for banks to identify what is critical and channel efforts in that direction.

Data Analytics is now a non-negotiable - given that data is termed the “new oil.” But, this data resource is only valuable if you can draw meaningful insights from it. Over the years, many financial institutions have collected massive quantities of data, both structured and unstructured. Banks are now using advanced data analytics tools and techniques to profile customers and develop forecasting models based on predictive analytics. However, as banks are gathering personal data; customers, regulators and other stakeholders are getting jittery about the use of personal data. Even though Tanzania is yet to enact data privacy laws, this can only be a matter of time. Banks should start analyzing the kind of personal data they collect and how this data is used and safeguarded.

Omni channel - or “channel convergence” - is now the name of the game. Bringing in mobile banking, internet banking, agency banking, social media and customer experience channels under a single platform sounds like a good idea. It reduces administrative and technical support burden and creates a more appealing customer experience. Omni channel platforms create a potential single point of failure; meaning, in the event of system downtime/outage, multiple client-facing systems will not be accessible to customers. Resilience and redundancy of the banking systems becomes very key in this aspect. Most banks are now improving their crisis management plans, business continuity plans and IT disaster recovery plans to minimize the risk of business disruptions emanating from system failures.

Product/portfolio diversification is an imperative as the divide between financial services and mobile telecommunication continues to narrow.

Most banks are targeting the unbanked population (approximately 65 percent of the Tanzanias population) through strategic partnerships with fintechs and telecommunication companies. At the same time, strategic partnerships do introduce an element of third-party risk. This is probably an area where financial institutions in Tanzania and across East Africa are still grumbling with. Senior executives are not very confident that these third-party partners and service providers have instituted relevant and robust measures against cyber risks, operational risks and compliance risks. Regulators have also been awakened to this potential risk and are now coming up with guidelines which demand that financial institutions drive third-party risk management initiatives.

In a digital world, networks of people and organisations rise together with new possibilities. But they can also fall together when associated risks are not well managed. That’s the nature of interconnectedness. However, the benefits to be derived from well executed digital transformation programs far outweigh the risks and potential roadblocks that come with it. Accordingly, there is a compelling incentive for all banking institutions to embark on a well thought through digital transformation journey.



Benjamin Mkwizu is an Associate Director, Risk Assurance Services with PwC Tanzania