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Cloud or Brick and Mortar – it’s your time to decide

Digitization is all about customer experience and building meaningful data in the cloud so that you can understand your customer better and ease their life by providing a seamless and superior experience. If you really want to figure out the most powerful country in the world, do not get into how many fighter planes it has, or the size of its navy forces or the number of tanks it owns, it’s rather its presence and expansion in space. Yes, those countries who dominate space are the most powerful countries of the world and they all have an eagle eye on all of us. The definition of power is changing as technology is advancing. Same goes with your enterprise. If you really want to stay competitive and stay in the business for a longer horizon, you should critically analyze and identify the right infrastructure to invest in. Now, I have a question for you. Ramping up your physical presence by opening 10 more branches or building infrastructure in the cloud, which one would you prefer if you are in a position to make a decision? Looks like a simple and easy decision to make, right? We can easily follow the majority but trust, this decision is going to shape the future of your enterprise. If you opt for 10 more branches because you believe that you already have a website and you also have a mobile application, you are definitely a guy who has seen success over a number of branches and you must have the perception that digitization does not really work in countries like Nepal. To make it more compelling, let me give you the fact that you are more in the clouds than on earth (if not all the majority of us). Mark knows you better than your spouses. If somebody wants to know you, you are not the source, the cloud is the source. You might forget your deadlines but your cloud does not. You might forget what you did the same day some 10 years back but the cloud definitely knows it. You might have forgotten your past but the cloud knows it. The cloud has literally made a slave, you have to ask the cloud when we should celebrate our loved ones birthday. Even your breathing pattern, voices, pulses, everything is there in the cloud. An interesting thing is, it’s all your data but do you really own it? You have already given consent over you to somebody else. Somebody else owns it and you know why? It is because that guy made the decision to build a cloud way long back when we did not even realize, they decided to build infrastructure in the cloud, they invested in it. So the question is very simple, is your business an exception? Or your argument could be, in countries like Nepal we need that personal touch so rather than investing in cloud and data, opening 10 more upcountry branches will give us more ROI. Well don’t take me wrong here, I am not trying to neglect the importance of physical branches, I am just trying to establish how important it is to invest in cloud and data for long term viability of your business. Be it Bank, Insurance or School or milk processing company or any company you can think of, investing in cloud is not an option if you want to grow. And I am trying to do nothing but just develop a context in a much understandable way why investing in digital technology should be a priority. Ramping up Digital Technology Digitization is not about iteration of your current processes and systems and pasting them in digital platforms. Digitization is all about customer experience and building meaningful data in the cloud so that you can understand your customer better and ease their life by providing a seamless and superior experience. If you are digitizing by copying and pasting forms on digital platforms and you believe that by doing so you are ramping up your digital presence, then only God can help you. You have to think broadly, the whole ecosystem. And how you can embed everything in the digital experience of your customer is going to shape your future. And you need to have a strategy around it exactly the same way you have vision and goal on top lines and bottom lines, the number branches you want to reach in 5 years or the portfolio you want to build over the time. As these things are discussed broadly in board meetings, your digital strategy and goal (both long term and short term) and way of achieving them including the investment required to reach there should be discussed robustly. Financial Institutions can begin to leverage by fostering open collaboration within an ecosystem of development partners and harnessing the power of analytics, open banking, APIs, AIs and Machine Learning. These new technologies can enable Financial Institutions to open up their core system to fintech and other third parties, thus helping to touch the entire ecosystem to better serve customers. Pandemic impact 2020 and  2021 are the years that tested the resilience of the financial services industry as institutions of all sizes navigated through a year of unprecedented uncertainty. But if we see the other side of the coin, it also has given us opportunities. According to a report from Next Advisor- for baby boomers roughly those between 55 and 75 years old, the pandemic has been a catalyst for more rapid adoption of online platforms and other financial services. From financial institutions limiting their branch access and hours, to the fear of coronavirus, the covid-19 pandemic has fast tracked the changing relationship between consumers and their financial institution. You may not deny the fact that what’s taken place over the last few months may have taken place over 5 years or more, one can even say 10 years and that could be right. The 21/90 rule is also reflective of making significant, and eventually permanent, lifestyle changes, based on research that says it takes 21 days to make a habit and 90 days to stamp it as permanent lifestyle change. We have far surpassed these date markers during the covid-19 pandemic and the financial services industry is not going back to what it once was. Digital transformation is no longer a nicety but a necessity. Collaboration is the only way out Companies like Amazon have made several fintech investments. The company may not build a traditional deposit holding bank, instead it seems to be taking the core components of banking and using them to best support its merchants and customers because of its vast data. CB Insights through its findings summarized that in a sense Amazon is building a bank for itself and that may be even more compelling development than the company launching a deposit holding bank. With innovations like Just Walk Out technology or Amazon One, it’s indirectly taking away the share of financial institutions. According to CB Insights Industry Analysis Census, the global voice shopping market is poised to grow from $2B to $40B by 2022. So, one way or the other, companies like Amazon, through its shift from e-commerce to Omni-channel enablement, is likely going to use its vast data to change the way its customers experience financial services. So the only way forward for financial institutions is not by competing or neglecting but by fostering collaboration to build the digital ecosystem. Millennials and Gen Z reinventing the Industry According to 2019 Morgan Stanley Research, millennials (Age: 25-40 years old) are the largest driver of net new loan demand and will continue to be for the next 8 years. And while many Gen Z (Age: 6-24 years) are still kids, they could set the pace for how financial institutions evolve. And the study also shows up to 80% of smartphones carrying Gen Z members are already using mobile applications. This cannot be false for Nepal also since technology adoption is massive in recent years. Consumers hopping is going to be rampant Consumers leaving and selecting a new financial institution based on digital experience is going to be the next trend. If you really want to be the one of customers who choose to stay or switch to you, your digital experience has to be seamless and responsive. Foresight Research published a survey in October 2020, involving nearly 11,000 financial institutions in 44 markets, suggesting that large multi-location financial institutions will experience significant customer churn over the next two years. In 2 years prior to the pandemic, the number of customers leaving their financial institution for another was 12%, whereas this survey suggests it will jump to 27% for large financial institutions for 2020-2022. Of those who intend to leave their financial institutions, almost three fourths are millennials or Generation-Z consumers. This fact can give us the roadmap for the future. What about Physical Branch We yet do not know the juncture to realize the importance of cloud over physical branches particularly in case of Nepal. But at the moment, finding that right balance might make us agile when we actually reach that juncture. We have to find the balance and build an Omni-channel platform to cater all segments of people. But if we are forward looking, we have to gradually shift the pie towards building a digital ecosystem. If we look from an international perspective, especially developed economies, as digital transformations continue to rise, we are seeing more brick and mortar branches close their doors forever. This is not a new trend in the world of finance; however the covid 19 crisis crystalized thinking on this matter. In 2020, UK giant bank TSB announced the closure of over 160 branches, this year Germany’s Commerzbank announced it will close more than 340 branches in the next few years. And these are just some of the stats. Meanwhile investment in digital continues to grow. You might think, how this is linked to Nepal as we are an exception, let me tell you that this is not the ideal way of creating the veil. We cannot be an exception. Just a matter of time. CEO as catalyst The CEO is not the expert on everything, he/she is just a catalyst and facilitator. First of all we should not have unfair expectations from CEOs that they know everything and they should also stop acting that way. Letting go of the fear of smarter subordinates is the only way out. Allowing them to blossom with an open mind is the win-win proposition. When it comes to making strategy on digital transformation through APIs, Machine learning, Artificial Intelligence and a lot of other technologies, it is obvious that we need a team who understands and has the right exposure. So it is always better if we play our role by telling them the end and let the people with the right skill set work and come up with means. How about that? Disclaimer: I am not a digital expert, just an enthusiast. The views expressed are entirely personal.