The yearly Temenos annual customer survey has identified product innovation as being the top priority for one in four bankers but product innovation can’t just happen on its own. Billy Bambrough takes a look at an industry survey that says more than meets the eye
Due to the massive success of the Santander 123 account and the expected product launches from Nationwide, banks are under more pressure to deliver products that go above and beyond the basic current account and credit card.
This is the result of the Temenos annual customer survey, which also, and perhaps unsurprisingly for a fintech company sponsored survey, has also found that banks need to spend more on core systems to remain in control of their own market.
Among retail banks product innovation was cited as the number one investment priority by 26% of respondents. Other key investment areas, in turn, are digital channels, complying with new regulation and IT modernisation.
In terms of industry concerns – regulation, new competition and changing customer behaviour emerged as the biggest challenges. As in 2013, maintaining customer loyalty was the single biggest concern, cited by 30% of respondents, with bankers concerned that more empowered and better informed customers may begin to switch providers in greater numbers.
Customer loyalty though is a misleading term here. The retail financial industry has long struggled with the idea of customer loyalty, due to the hassle associated with leaving your bank for another. Customers have never been truly loyal to their bank in the way we understand loyalty in other markets, preferring to stick with what they may admit to being a poorer service for the convenience of staying put.
The second problem with statement that lack of "loyalty" is a switching incentive is that switching isn’t necessarily a bad thing, with many banks often reporting as many new joiners as leavers. This kind of churn though is not what banks are concerned about. It all comes down to the surveys next notable finding, that banks are very worried about new market entrants. This is to an extent put down to new "traditional" players entering the market but much more of a concern is pressure coming from outside the industry.
The survey found that competitive pressures from outside the industry, that is, from non-banks, are considered as least as serious as competition from within the industry and with technology vendors, such as Apple and Google are seen as the greatest threats (cited by 23% of respondents).
Putting all of these together you can easily follow through each of the key elements identified by the survey to their next step.
For banks feel the need to create innovative products they need new and modern IT systems capable of dealing with them. The regulators are clearing pushing banks in this direction but there is resistance among the banks to act as the regulation is seen to be too fluid and likely to change so is not acted upon. This in turn creates resentment among customers who see other industries progressing into digital at a far greater pace than the banking market.
Technology companies, commanding both loyalty and perceived innovation for customers, are given an almost open goal in this scenario, having only to contend with the regulator.
With competitive pressures coming from outside the industry in the form of TransferWise, Apple Pay and bitcoin, banks are under more pressure than ever to remain relevant. Legacy issues aside, the bundled type of banking that most of us users of is at serious risk of becoming extinct if banks don’t work to retain customer faith in their services.