Retail Banking: London 2015, sponsored by Fiserv, held host to some of the boldest minds in retail banking today. Following a keynote speech by Vernon Hill, the founder and chairman of Metro Bank, four panels revealed many crucial insights into the future of retail banking. Patrick Brusnahan reports
Held within the glamorous walls of the Waldorf Hotel, the conference kicked off with a keynote speech from the legendary Vernon Hill, founder and chairman of Metro Bank.
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He highlighted the strategy of banks considering their customers not as customers but as fans. He said: "Great businesses with great value learn to get fans."
Hill stated that his idea was not to acquire, but to build. The fact that Commerce Bank, the lender he founded in the US (subsequently sold to Toronto Dominion for $8.5bn with masterly timing a year before the banking crash) went from one suburban store to over 500 branches, or stores, pays testament to that.
In the UK, said Hill, "a country where you swear nobody switches banks, over 500,000 people have switched to us [Metro Bank]."
He felt that the big banks in Britain had taken the customer for granted and that Metro was not ‘burdened by the past’.
There was also a huge defence of the physical presence in relation to Metro bank’s stores. Hill said: "The store is the public face. It’s part of the brand and the experience. We’re open for the consumer’s convenience, not ours. Retailers make their stores different and fun. That’s what we’re trying to do."
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By GlobalDataWinston Kassim, vice president of strategy & strategic performance management (Personal & Commercial Banking) of Royal Bank of Canada, concurred. He said: "I was most impressed with the layout of the Metro store I visited the other day. There is no question in my mind that customers want branches."
Hill said that he hopes to turn a profit by the fourth quarter of this year and said: "I’m not trying to be a US brand, I am a US brand. The customers are saying ‘Thank God we have a choice’. We get that people want change."
He concluded: "The Americans have lost their minds and the business environment is much better here."
The Retail Banking Landscape
Karina McTeague, director of retail banking supervision at the Financial Conduct Authority (FCA), stated that her objective was ‘making the market work well’, particularly when it came to innovation.
She said: "We are committed to being a forward-looking regulator. We are supportive of innovation in and for firms. The regulator and the regulated both need to embrace technology."
However, she warned that utilising technology without the proper thought process can lead to trouble. When looking at a digital strategy, McTeague highlighted the need to think about the risk for customers. If the new digital strategy was about cutting costs, it absolutely could not be at the customer’s detriment.
She added: "Nobody wants the excitement of innovation to be overshadowed by a loss of confidence."
The emergence of mobile phones and social media were of particular concern. Every bank’s interaction on social media has to be compliant. Even if somebody retweets something from a bank’s Twitter page, it must still be compliant.
She noted that there are now as many mobile phones on the planet as there are people. With the world now being an instant and a digital one, the sales process must be seen through the customer’s eyes and cybersecurity now has greater prominence than at any other time.
She concluded: "If the banking industry is to be trusted digitally, it needs to be transparent in its data collection and its goals."
Travers Clarke-Walker, chief marketing officer of Fiserv, put a particular emphasis was put on the new entrants in the marketplace and their effects. Clarke-Walker asked: "Are disruptors actually challenging the status quo?"
He asked this as while the rapid growth of mobile adoption is evident in the United Kingdom, only 34% of the country use mobile banking. For any Tier 1 bank, the risk of possible disintermediation is massive. The industry is having its ‘Kodak moment’, in that they now have to fight to stay relevant or fall away forever due to emerging, disruptive technology.
This is a startling thought as customers may not necessarily have brand loyalty to their own particular banks and could move to a challenger bank or one of the newer startups entering the fray.
Clarke-Walker said: "The opportunity is to be first and foremost with these new payment methods. The providers took all of the friction out of payments. Technology solves challenges if it is always on, transparent and frictionless. Customers want the future and not the past."
McTeague added: "We’re keen for new products, but you need to think about the consumer experience. It can get intrusive, but in this world, there is money to be made as a first mover."
Clarke-Walker continued: "Despite millennials’ attraction to technology, all of millennials’ first applications will need human participation. There is a place for all channels at certain points."
Winston Kassim was at pains to stress that banks ‘must be on the customer’s path to stay relevant’.
Key Customer Segments & Improving Customer Experience
Rajat Garg, managing director and EMEA head of retail banking & wealth management at CitiBank opened with a bold claim.
He argued: "Clients want safety, security and quality advice, but we’re in an era of recurring financial crises. Crises are here to stay and we need to take that into account."
As a result of the constant turmoil that the financial sector appears to be in, Garg believed that the sales process needed to change and his entire organisation needed to be realigned. As a result, the sales force is no longer driven by targets, but by the portfolio review process.
Tom Kentgens, global business development private wealth management at Ortec Finance, addressed the issue of adding value to investment advice by using digital methods and compliance.
Kentgens said: "We’ve seen a massive shift to discretionary advice and execution only. Execution only will be used by many more clients. Discretionary advice will be the next level where portfolios are automatically managed by asset managers. Advice on a face-to-face level will only be available for the biggest clients that are active in their transactions behaviour."
Garg concluded: "Big banks need to listen. The UK has the fourth largest affluent segment and wealth management is now risk management. This emerging gap is an opportunity."
Kentgens also believed that it was important that all of a bank’s mobile operations on mobile worked properly, but in terms of social media, clients don’t really trust it for business. He said this showed that banks have a clear difference in viewpoint of channel usage from their customers.
Andrew Moody, industry head of finance at Google, stated that ‘data and process are the new black’.
Moody continued to explain that digital has completely changed the marketing process. People spend more time on digital channels and, as we spend more time online, there are more individual moments.
On this topic, he said: "The real question is whether all the digital marketing tools are integrated."
There are currently half a billion Google searches on banking each year and technology is at the heart of this. Banks needs to adapt to suit this trend. That is why, in Moody’s words, a chief marketing officer is now also a chief technology officer and a chief investment officer.
Hal Oskarsson, executive chairman of Verdicta, considered the notion of changing customers’ perception with corporate framing.
He said: "A lack of trust is making the scenario different to what is used to be. Reactions have changed dramatically. The fundamental values of people have changed."
The main point was that banks are still communicating in the same ways that they always have, but they need to reframe all touchpoints.
Oskarsson explained that the concept of corporate reframing could be the answer. One example he gave was Allianz’s corporate framing strategy which led them to increase their market share in Iceland from 5% to 25%.
He concluded: "Reframing is a deeper understanding of how people react and think subconsciously."
Transformation, Big Data and Online Branches
The conference then focused on one of the most prominent trends in the banking arena: Digital Evolution.
Sophie Guibaud, vice president of European expansion at Fidor, begun by talking about the beauty of a ‘hybrid model’ for banks.
While many banks consider FinTech to be a disruption to the sector, Guibaud posits the idea that ‘FinTech is not a threat, but an opportunity’.
However, she felt that perhaps banks were not taking advantage of the opportunity as much as they could. She said: "I haven’t seen much change in online banking for a while. It hasn’t moved a lot. Banks have had to focus on regulation, not innovation."
Due to the strain of the financial crises in the industry and the focused efforts on profit, ‘banks are offering what they can, not what consumers want’. However, she stated that ‘banks need to focus on customer experience to remain competitive’.
The way to follow this strategy is through FinTech. It provides an opportunity to provide a better customer experience. Banks can lend their infrastructure for FinTech to operate and, in fact, banks need to operate the DNA of FinTechs. By that, she meant ‘using clients’ information to provide a fuller banking experience’.
Some of the statistics given were sobering. 71% of millennials would rather go to the dentist than listen to what banks are saying and one in three is open to switching banks within the next 90 days.
She concluded: "70% of millennials believe that financial services will be completely different in five years time."
Pierre Habis, managing director and group head of consumer, business and private banking at MUFG Union Bank, spoke on the personalisation of data for a stronger customer experience.
The first point he purported was the common denominator in the industry; taking existing technology and making it frictionless.
The problem is that their research finds that only one third of consumers are somewhat satisfied by their bank and, in the US, attrition is high and in double digits. He said: "While everyone is focused on tomorrow, there’s still something happening now."
Daryl Wilkinson, head of group digital development at Nationwide, discussed the digitisation of branches and whether this was the future of high street banking.
Wilkinson believed that the branches of today need speed and convenience. Another factor becoming increasingly important was personalisation. While FinTech firms and technology in general were helping remove the friction from branch services, particularly identification, there still needs to be a human touch augmented by technology.
Travers Clarke-Walker of Fiserv stressed the need to recognise the power of our devices. "The quality of what you can do with transactional data could be much richer."
But David Pope, European Marketing Director at Jumio, said: "In terms of getting out from behind the counter, banks don’t really have that mentality. Unfortunately, the motivation to get digital services is not for the consumer, but to save costs."
Habis said that 20% of consumers may only come in to a branch once a year. The big challenge is to get the folks that do not come in to come in. After that, banks need to engage the people that come in.
He added: "What is actually happening in that one moment when a customer walks in? It has to be about making people feel good."
Wilkinson expressed the importance that branches still play in the lives of consumers. He said that 80% of customers need branches in case something went wrong. He believed that branches gave a sense of reassurance and even seeing a branch was reassuring to a customer.
Habis announced that MUFG are planning on launching four new cashless branches and concluded: "Branches are not going to go away in the near future."
Innovation and Disruptors in Retail banking – Building a Roadmap Beyond 2015
The final, and most heated, panel of the day consisted of Phil Tootell (founder and executive director of Certeco), Anne Boden (CEO of Starling), Alex Letts (CEO of Ffrees) and Anthony Thomson (founder and chairman of Atom Bank). It turned out to be, as chair of the panel Douglas Blakey stated at the beginning of the panel, a ‘fairly lively and controversial final session’.
Anthony Thomson, who also founded and was a former chairman of Metro Bank, began by considering competition in the banking sector. He highlighted his upcoming, digital-only bank, Atom, which he wanted to be the ‘world’s first telepathic bank’.
His first statement was bold. He said: "Bank branches do not have a future."
He believed that banks were stuck and bogged down with legacy real estate and wrong perception; value is price. His belief was that service and convenience are far more important than price.
He continued: "Nobody cares about banking. There’s no future for branches as a transactional centre. People are doing more and more on mobile devices. The consumers that get the best service are the ones that self-serve."
Thomson believed that a bank has to be more about culture than strategy. He concluded: "Culture eats strategy for breakfast."
As the panel began, Anne Boden claimed that banks have been very slow to adapt in recent times. She said: "While we were worried about the crisis, people and technology were moving on without us."
Alex Letts was also dismissive of current strategies held by high street banks in the United Kingdom. He said: "The business model in banking is driven by products that drive people into debt."
Paul Tootell had bold claims to make about Certeco. He said: "We are the executors of change. We set out to compete with our own big four in the consultancy world."
A huge debate began over the idea of the free current account, one very much present in the British market. Boden believed that a free current account was entirely feasible.
She said: "All of our plans are on the basis of offering a free current account. We haven’t even considered being chargeable. Current accounts are profitable. What we have at the moment in most organisations is the cvost of cash and the cost of branches allocated in the current account product. Isn’t that unfair for the people who don’t want to use those branches and don’t use cash?"
Letts disagreed and said: "You cannot offer that service for free."
However, he added: "The free current account with credit is a scandal. It’s anti-competitive and it does prevent innovators like Ffrees approaching the market. I suspect the CMA have spotted that and, at some point, we’ll get round to a judgement that makes it quite hard for banks to continue with that. The other bad news for the banks is that a lot of consumers have realised free if in credit banking in a trap."
A question posed to Thomson, as Atom is a fully digital bank, is what happens if the system goes down in a digital bank?
He replied: "If a banking infrastructure goes down, you won’t feel better because you’re in a bank branch."
Tootell added: "Your system might go down, but it does not take six weeks to figure out what the problem is."
With regards to the increasing competition in the marketplace, Boden was optimistic. She said: "I feel passionate about the fact that people need choice and proper banks, like me and Atom Bank hope to be. People need products that give functionality, like Ffrees. The diversity in the marketplace can only create real competition. While we have all the major players offering the same product in the same way with roughly the same charging mechanisms, we’re not going to have innovation."
Thomson was not very enthusiastic about its current situation. He said: "It has become easier, but not easy, to become authorised as a bank. However, I do not think having more banks and more competition actually results in more choice for consumers if all the banks are doing the same thing. You have to do something different."
Letts agreed: "While account switching is now easier than ever, only 1.4% of people switch. It’s a joke. Not because the switching service is bad, but why would you move from one piece of rubbish to another piece of rubbish?"
Thomson added: "It’s also a misleading statistic. The 1.4% of people who have moved are the people who have moved everything. Depending on whom you ask, 8-9% of people have effectively moved banks, but they have not closed the existing account."
As the Q&A began, a delegate posed a tricky question wondering if any of the panel’s offerings were actually disruptive at all, noting their significant lack of scale compared to the big banks within the UK.
Thomson disagreed and gave Virgin Atlantic as an example of a disruptive company which started small, but then changed its own industry. He also regarded his old bank, Metro, as a particularly disruptive presence in terms of increasing opening hours at branches and removing the incentives for branch workers selling products.
Boden said: "We don’t need five million customers to be disruptive. I believe that in five or six years’ time, we will start to see a trend where some banks will consolidate.
"You’ll see a few big banks in the marketplace, but you will have certain people buying their financial services from disruptive providers. At the moment, a lot of disruption is coming from people trying to get around the system. There’s been disruption in other industries, we’ve not seen it in banking, but it’s coming."
Thomson concluded: "The biggest disruption we’ve seen in the market is from providing software as a service. It has completely changed the way the world approaches bringing banks to market. It reduces costs and the time to bring the bank to market. That is a fundamental revolution."
