This is a question that many are asking; not only customers, but also established banks, challenger banks, non-banks and commentators. Changing demographics, new technology, increasing regulations and new demands from increasingly less loyal customers, are exerting pressure on the banking sector and driving new paradigms. When this is combined with the increasing cost of compliance, and the ever-present issue of legacy systems that are ageing and cannot meet current requirements, it creates an environment that is ripe for change. Change equals opportunity and ‘predators’ in the shape of both challenger banks and non-banks are eyeing the sector hungrily.
The core services of banking are a secure place to place money; loans and overdrafts; money transmission (payments); and transaction facilitation – eg via ATMs. Alongside these banks may offer some or all of: foreign exchange and travel facilities; trade finance; insurance products; securities trading; and advice. It requires a major infrastructure to deliver all of these and the correct branding. The factors above, however, have now changed the game, or at least part of it. Non-banks, which have trusted brands in other markets, are increasingly expanding into some of these areas, previously the preserve of banks, building on their brand and using new, easily obtainable technologies to take on the banks in their backyard. Crucially however, they are not offering the full gamut – but unbundling banking services and cherry-picking selectively.
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Similarly, challenger banks, which are usually smaller and largely unencumbered with the political issues and the IT and physical baggage of the larger banks, can use innovative and imaginative methods of offering services to customers.
How do banks respond?
Banks need to develop a coherent and consistent strategy to face these challenges, or they may find their most lucrative sectors and customers under threat. There are a number of actions which banks can take, building on their strengths. Firstly, they must tackle the issue of changing customer needs by investing in technology to service customers when, how and where they want products and information – whether through web and branches – ”net and networks” or "clicks and bricks" – or through devices – "laps and apps" – and letting them own their banking interactions.
Secondly, banks must be imaginative in how they allocate expenditure. Although there is a compelling need to comply with regulation and other areas such as ‘ring-fencing’, instead of complying for compliance sake, they should use the considerable capital required for this to improve the customer experience – better, faster processes, especially when it comes to decision-making and elapsed times. This can help make a significant different to customer experience by, for example, exploiting data that they hold internally – covering expenditure and other patterns, and melding this with that which is externally available from social media and other sources to provide a true understanding of customers’ needs and wants and thus develop a customised and tailored range of products and services which newer competitors cannot match. This will bind their customers closer to the bank and also facilitate cross-selling of services which are focused on anticipating changing needs as well as personalising these services: customers do no not want to use "a bank’s app" but they do want "my app for banking".
Thirdly, banks simply must embrace the digital world of "the now" but while still keeping an eye on the future requirements of the "to-be" world of generation Y ‘tech savvy’ users and beyond, whose members and family will be the customer base of the future.
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By GlobalDataFinally, banks need to use their technology investment to reduce costs dramatically. This is possible through economies of scale, generating increased efficiencies through industrialisation and the Cloud, and greater centralising of behind the scenes processing – but not decisions or interactions. Crucially they must then share these reductions with customers by reducing prices and making the processes easy to use and largely invisible with first rate resilience, thus enhancing the brand and customers’ perception and trust in banks.
Winning strategies
According to the latest TCS survey 75% of banks expect to lose customers to non-banks using new disruptive technology: but only around half of financial services organisations have a clear digital strategy. This is a glaring omission which must be addressed. The winners in the long-term will be those that use technology to understand their customers and their current and future needs, develop a compelling, but tailored, set of customer value propositions which demonstrate knowledge of the customers’ and the banks’ shared goals; and anticipate needs with a customised suite of products.
This should be delivered through seamless and faultless operations using new technology to develop an ‘agile’ organisation which can respond to customers’ needs as they metamorphose, delivering excellent service, at their convenience – through a mixture of channels both existing and new (such as avatars, I-agents, interactive screens or walls, ‘pop-up bank branches’ and so on) and through new products such as payment wristbands or a single view of products on their devices.
Neil Jones, Consultancy Partner, Tata Consultancy Services
