If disruption was the theme of 2015, no industry was more affected than banking. Not only did smaller ‘fintech’ disruptors receive the lion’s share of venture capital, but successive articles in industry broadsheets also breathlessly predicted doom and gloom for traditional banking. Simon Mulcahy writes
There is some truth to their soothsaying. Nutmeg, Transferwise and Venmo are becoming household names, and new, mobile-only banks are sprouting up everywhere. Lending, investing, payments, money transfer, insurance and financial advice are all in the cross-hairs of change. And not just targeted by the fintech army. Apple, Facebook, Google, Uber and other technology players are clearly in the game. Challenger banks, such as supermarkets, are there as well.
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And finally, telcos, as witnessed by Orange’s recent bid for Groupama Banque, are looking for a piece of the action.
How much risk does this pose to traditional banks’ bottom lines? McKinsey points to 10 to 40% of traditional bank revenues being at risk by 2025.
But while this is, on the surface, significant, the industry should be paying attention to evolving customer expectations driven by the same technology that is changing the competitive landscape.
For example, banking has gone from sporadic visits and cheque book balancing to daily log-ins on a mobile app. The bank is now in your pocket. At the same time, customer expectations now draw from experiences in retail.
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By GlobalDataConsumers want simplicity – and to bank the way they want to, be it through an app, at an ATM or in a branch. They also want the bank to know them. They expect that all the data they are giving up is delivering value back to them.
Traditional banks know this. And while the whole story has not yet been finished, the writing is already on the wall. In fact, the UK Government is subsidising the ink and brushes. Under the Payment Services Directive II, which comes into effect in July 2017, new parties can stand between the bank and the customer to take on a lot of the important front-end, ‘customer experience’ services for them. This makes it easier for customers to switch to providers of ‘better experiences’.
Yet, despite all this disruption, I believe that retail banks have a major opportunity to win. Why? They have millions of customers, extraordinary amounts of data and many channels. They know their customers. If only they could achieve personalisation at scale with every customer interaction, the game would be over. How do they do this, though? Here are six ways for banks to fend off digital disruptors in 2016:
1. Think Effortless Experiences, not Products
The customer is only ever one click away from choosing a competing payment method or loan. Every poor service experience increases disloyalty. The key to driving loyalty is to deliver effortless experiences. There are thousands of ways of doing this – every touchpoint with the customer should be designed to reduce effort.
Banks need to proactively reach out to the customer when there is a service issue; make it easy when the customer swaps channels; make onboarding blindingly swift; do away with labyrinthine automated phone answering experiences; pre-approve customers to certain offers to reduce wait time; and, ultimately, provide a single view of the customer to employees so that they can represent the bank more completely.
2. Build an Engagement Layer
Almost all core banking technology is designed for a product-centric world that celebrates ‘build-it-and-they-will-come’ thinking. They won’t (anymore). Banks need to build a separate ‘engagement layer’ that delivers a single, unified view of the customer for the bank’s systems and employees.
This engagement layer needs to live in the cloud, API-first, mobile-first and highly flexible. Otherwise, it becomes just another disconnected system or tool that employees and customers need to grudgingly log into.
3. Deliver Precision Banking
Engage every customer on the back of what you know about them in real, or near-real time. Deliver personal and contextual messages, alerts, offers and advice delivered on the most appropriate device at the most relevant time. At scale. Banks do this by aggregating information from multiple sources, and connecting it to carefully designed journeys and a real-time decision engine.
4. Be Agile
The pace of business is accelerating. Banks need to be able to gather feedback from customers and react to it faster than the competition. Apps are key to bolstering responsiveness, but they cannot go through long traditional app development lifecycles if they are to be effective. Indeed, a recent study by CSC and Finextra of 74 financial institutions shows that for nearly one in two (45%) financial institutions it takes more than six months to build a new mobile app. Worse still, for nearly a quarter (22%) it takes more than a year. Building apps close to the customer by business analysts is a smart approach that can improve timeliness.
5. Partner
Technology firms have traditionally acted as vendors to the industry, selling point products, whether it’s core banking or call center software. The best banks bring their technology providers closer, making them part of the team. That proximity benefits both sides, allowing for much needed cross-fertilisation of knowledge, ideas and needs. In this new world, banks fail when they go alone.
6. Be One Bank
The customer sees one bank, and has no patience for operational and process siloes. For example, it is a missed opportunity for a customer making a large deposit to not automatically receive offers around tax free savings. The benefits are clear: a customer who uses four financial products provides 730% more revenue, on average, than the customer with just the single product.
Despite the pressure from non-traditional banks, regulators and customers themselves, it’s not all doom and gloom for retail banks this year. Technology-savvy banks are already beginning to move towards precision banking. They’ll not only win customers, but they’ll also have the pick from all the disaffected banking talent in the market today. And that’s why ‘digital disintermediation’ don’t have to be dirty words.
Simon Mulcahy is GM of Salesforce Financial Services
