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Banking

BANKING BEYOND DIGITAL TRANSFORMATION

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by Peter Matthews of Nucleus

 

Banking used to be so simple. But the boom and bust of the last twenty years has left the industry reeling, with agile, lightly regulated challengers picking off the tastiest services, while regulators’ demands ensure overheads rise for delivering core services.

 

If ever there was a time for bankers to ask big questions, it is now. I’d recommend starting with “what business are you really in?”

 

The firm foundations banks once believed they could rely on to retain customers, such as their 100 year heritage, have been crumbling. Digital transformation has struck every industry sector hard, yet some have adapted and even thrived as they have harnessed new tech and embraced new mindsets. Banking has struggled.

 

Peter Matthews

Banks are not simple businesses, though, typically combining ‘000’s of processes to aggregate their basic business model of cross-selling. Open a current account to grab the customer’s main income and then add a savings account, investments, mortgage, loans, insurance, etc, etc. Not that long-ago retention was not a problem, customers rarely switched accounts because it was too complicated. That, too, is changing.

 

Accenture’s consumer banking survey in North America shows in the past 12 months 18 percent of millennial customers switched their primary bank. Compare this with 10 percent of customers aged 35–54 and 3 percent of people 55 and older and it is clear that millennials are shaping the future. With Open Banking on the near horizon and increasing competition from challengers, neobanks and fintechs, retention is going to become an issue if it isn’t headed-off at the pass.

 

Millennial-minded brands get higher valuations

It must be galling for banks when a fintech start-up, which doesn’t even have a banking licence, goes out and acquires 1m accounts and a $1bn valuation for delivering one digital service well. Revolut, as an example, started with a very useful FX app, a pre-pay debit card and an EU e-money licence and has built a unicorn valuation on those humble beginnings. Whether they can transform into a successful, fully regulated bank is not clear, but they’ve won over a lot of millennials in the meantime.

 

Millennials’ expectations are set by Big Tech (Google, Facebook, Apple & co). They want highly personalised services and best-of-breed user experiences across all their devices, and they won’t think twice about switching to a service they deem better suits their needs. Convenience is key and brand experiences matter to them.

 

Monzo made its mark with a fluorescent card, a pre-pay account and a groovy app and is now an FCA regulated bank. Many fintechs claim to be reinventing banking, but reinventing payments is probably closer to the truth. Banking is much more complex than a mobile app or money management tool.

 

However, competing in this new landscape means traditional banks must get smart and transform their brands and cultures as well as digitise their processes. If there is any further evidence required we need only look at organisations in other sectors that failed to do this. Blockbuster, Vine and Blackberry are good examples of companies that failed to spot new trends and adapt to emerging models in time, led by companies such as Netflix, Snapchat and Apple.

 

Banks must figure out what business they are actually in and align a new vision with a clear value proposition that resonates with tomorrow’s consumers.

 

Brave new thinking

Traditional banks still have time to respond. They have scale, financial capital, regulatory approval, brand recognition, customer data, distribution and, despite their problems, a reasonable level of customer trust. Granted they are also slow, predictable, political, risk-and-change-averse; and mostly remain reliant on thirty-or-forty-year-old legacy technologies.

 

For the last few years, most financial services companies have focused on ‘digitisation’ and removing those famous ‘pain points’ or ‘friction’ in the customer journey. To drive future growth, more radical thinking is required, with a focus on ideas, propositions and stories, while identifying and solving real-time issues as they occur. It goes without saying that this includes ensuring systems don’t crash or are breached, as security is probably the key value customers still associate with banks. This must never be compromised.

 

 

Perhaps privacy and trust could be the new competitive advantages

Data is banking’s hidden gold and incumbent financial brands must learn to leverage this hugely valuable asset to better serve individual customers and share value, rather than make money out of selling it to advertisers, as Big Tech does.

 

With Open Banking soon to make its mark, financial data will become the new battleground, but questions about data privacy may result in many consumers saying ‘it’s not for me’. With GDPR shining a spotlight on explicit consent and exposing Big Tech’s freewheeling attitudes to personal data, expect data privacy to become a big topic for 2019. Fintechs will use Open Banking to challenge retail banks, but fears over financial data falling into the hands of Big Tech may inhibit adoption. Imagine Facebook combining what it knows about you from Facebook, WhatsApp, Instagram and your bank?

 

However, banks have two advantages over the fintech challengers who are salivating over the prospect of getting their hands on Open Banking data which can tell them where customers shop and what they spend their money on. The first is historic data, which is invaluable when assessing risk for loans and mortgages; and the second is trust (albeit somewhat compromised after the financial crash).

 

With trust as a core value, banks’ handling of data needs to get privacy right. To date retail banks have accumulated masses of data about us, yet barely scratched the surface of using this to improve user experiences and their own decision making, still relying largely on credit rating agencies’ – often unflattering – profiles that can penalise individuals for a single misdemeanour for up to six years.

 

If banks truly want to meet their customers’ needs and expectations and respond to their fintech challengers, they are going to have to shift their approach to personalisation and build new engagement models, based on frictionless processes, transparency and trust and, perhaps, a return to more ‘discretion’, particularly in their credit decisions. In a digital world, being treated like a human is valued more than ever.

 

There is no doubt that we are all more likely to trust a service provider who values our privacy (beyond mere legal compliance) and is transparent about how our data is used. And trust, of course, encourages loyalty.

 

 

The power of brand purpose

Changing customer perceptions of any incumbent bank requires a refreshed sense of purpose and a clearly articulated, differentiating brand proposition. A disciplined and rigorous branding methodology is key to success, particularly if leadership teams are to engage staff in the process of reinvention, which can be hugely valuable during periods of transformational change. The re-definition of purpose and the articulation of a compelling value proposition should be at the heart of every brand.

 

Tomorrow’s bank certainly needs technical transformation, but that won’t be enough in itself. A bank has to be more than its own processes. If it can deliver a secure eco-system of financial services based on a proposition of trust, transparency and privacy – in a world where everyone else is using stealth methods to access customer data – you might just have identified a good reason why your 100 year-old bank still deserves to exist.

 

 

Biography

Peter Matthews is founder and CEO of Nucleus, an independent London-based brand, digital and IP consultancy.

A designer by training, Peter continues to personally lead strategic brand creation, innovation and transformation projects for international clients, specialising in financial services, travel and luxury. His rare combination of business, design, digital and IP expertise are highly relevant at a time of digital disruption in banking and beyond.

In financial services he led the user experience team creating First Direct’s online bank as long ago as 1996 and more recently has advised Azqore, Crédit Agricole Private Banking, Indosuez Wealth Management, HSBC, NatWest, Standard Chartered, Rothschild & Co and, most recently, two new challenger banks.

 

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Banking

HOW TRADITIONAL INSURERS CAN USE TECHNOLOGY TO IMPROVE THEIR RELATIONSHIP WITH CUSTOMERS

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The customer experience with insurance is anomalous, in that one is only required to engage with their insurer if things are going wrong for them. To add value to the relationship, new technology and methods should be adopted, in turn driving loyalty and business growth, writes Oliver Werneyer, CEO and Co-founder of Imburse

Oliver Werneyer

Insurance is one of the oldest industries in the world and it is still, to this day, considered a grudge purchase. Looking back, insurance has a history of having a challenging relationship with its customers. According to an IBM study, in 2008, only 39% of consumers trusted the insurance industry. This percentage has stayed largely similar over the years, having reached only 42% in 2020. For any business with growth ambitions, good customer relationships are crucial.

I believe that now more than ever, the insurance industry not only needs to continue investing in improving relationships with customers, but to really think about new ways of doing so. At a basic level, the moment of truth for an insurance customer is when either they need to pay or are getting paid. Insurers can have the best policy wording, quick claims processes, apps and advisors, but if the experience to pay premiums or to receive a claim is bad, the customer immediately loses trust.

The pandemic has exposed this tenuous relationship between insurers and its customers. The need to move everything online and provide personalised services has exposed significant shortcomings in the service insurers provide. The industry has been too slow to adopt newer technologies and move engagements closer to the customer (self-service and empowered). This is largely due to the legacy systems and processes that insurers failed to modernise over previous years.

This means that the better-positioned incumbents have stronger customer relationships and benefit disproportionately from the pandemic, as they are able to win more new customers and convert customers from other insurers. They also benefit from significantly lower customer acquisition costs and much better growth, as illustrated in this McKinsey report. Even new entrants or InsurTechs are benefitting massively by focusing on improved customer experience and customer relationships.

However, it is never too late for insurers to build better relationships with customers. The main way to build a good relationship with a client is to make life easier, live up to promises and add value through the relationship with them. By working on these key elements, insurers can start building strong relationships with their customers, and, through the right partners, deliver this in a timely and non-disruptive manner.

 

Embedded Services

Insurance products often get a bad reputation because they cost money, but the benefits might only come much later, or never. Customers don’t get to experience a positive relationship with insurance products, either because they never claim and feel like they lost out, or they claim and they’re in a bad situation. By either embedding other services into the insurance experience to deliver a more transactional engagement, or embedding insurance products into general customer experiences such as online shopping or rewards, insurers can enrich customer relationships to generate value.

This way, insurers become a value-adding part of the customers’ everyday activities and not just a product that they have to pay for and may never get anything back from. One example is to embed micro-savings capabilities, often found in banking, into pension savings and insurance products. This can allow customers to save more for pension, attract younger customers and build a portfolio of fiscally disciplined customers.

 

Tailored journeys and personalisation

Customers have come to expect personalised journeys and engagements from product providers. Streaming services, social media, e-commerce or mobility services have shaped the customer expectations. Now, customers are also expecting personalisation for insurers.

Insurers need to invest very heavily in delivering personalisation and customisation to customers as they engage with their products. Failure to deliver this puts renewed strain on the value perceived by the customer and their relationship with the insurer. This applies not only to customer interfaces, but to aspects such as payments. Insurers should make it easy and pleasant for customers to pay and get paid. As the main moment of truth, payment experiences need to work optimally.

 

Perceived customer value metrics and delivery

The value customers derive from insurance products is, generally, monetary. Therefore, insurers must invest in product enhancement to increase its perceived value. Perceived value is not tied to a monetary value. By being able to choose between multiple payment options, such as a $300 pay-out to a bank account or a $320 Amazon voucher, the customer has a higher perceived value of the payment. This can be achieved by leveraging non-insurance products that can be purchased at a discounted price, exclusive access that the customer would otherwise not have or conversion into a form that is more useful to the customer.

Payments, for collection and pay-out, are at the core of delivering this value. An excellent payment experience immediately influences the customer to be positively inclined toward a product (PwC report). In order to offer this, insurers need to leverage multiple technologies and providers, offer any speed of transaction in any market, and deliver faster automation and better risk control. The key is to transform insurance products into transactional value-adds to customers’ lives and use this opportunity to continuously build on relationships with customers.

The main roadblock for insurers is still the operational implications of these activities and the costs that arise. In looking to build a better customer relationship, insurers need to look at partners that are operational enablers to deliver this. Partners that can solve the integration and speed-to-market problem so that insurers are enabled to deliver new capabilities, not bombard them with new ideas and no path to delivery.

Imburse, for instance, enables insurers to access all the global payment providers and technologies available in any market. Through a single connection, insurers can deploy any payment capability into any channel, for collection and pay-outs, without ever again needing to build a direct operational integration to the providers. This gives them full freedom to leverage payments as a key value driver and customer experience enhancer.

Building a better relationship with insurance customers is key for the insurance industry to close the protection gap. Incumbents are in the prime position to look at Insurtech and Fintech partners to rapidly and significantly modernise, digitalise and transform their own capabilities to deliver major enhanced value to their customers.

Imburse is an advanced universal payment connector that enables businesses to gain cost-effective access to complete global payments technology, regardless of the service provider. To learn more, please visit www.imbursepayments.com.

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Banking

UNCHARTED TERRITORY: HOW OPEN BANKING CAN HELP BANKS NAVIGATE COVID CHALLENGES

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Opinion from Rafa Plantier, Head of UK and Ireland at Tink

The last year has propelled banks, businesses and consumers alike into uncharted territory. Changes which would normally have spanned years were compressed into months. Financial institutions who had already embarked on the path of digital transformation had to accelerate their plans, and customers of all walks of life had to become acquainted with using digital services almost exclusively.

Rafa Plantier

According to our recent research report ‘Open banking in the post-pandemic world’, 41% of European financial executives believe the shift from digital-sometimes to digital-first during the Covid-19 pandemic will be permanent for the financial services industry.

There are two sides to this coin: it’s indisputable that industry and economies have been weakened as a result of Covid-19. A drop in revenues and profits, regulatory challenges, new disruptive market entrants, and low interest rates, all mean that banks are poised in a delicate position. However, open banking represents a significant opportunity for banks transitioning from analogue to digital, and from closed to open. Here are three ways open banking can benefit financial institutions in the post-pandemic world.

 

Putting innovation in the fast-lane

Covid-19 led to a rapid, unforeseen change in consumer behaviour that meant digital innovation became a need-right-now rather than a nice-to-have. Over the last year, financial institutions had to innovate in real time to ensure business continuity and serve their customers as their needs changed swiftly.

The sense of urgency is palpable across the industry. Over two thirds (65%) of financial services executives surveyed agreed that it’s necessary for banks to increase their speed of innovation as a result of the pandemic, and 74% of financial executives believe the pandemic has increased the need to enhance digital services.

Open banking technology can act as a catalyst to innovation and digitalisation. It can enable access to tools and capabilities which are scalable across geographies, lines of business and customer segments. For example, by using techniques such as recycling code or toggling different data-driven services, banks can short-circuit the time to market for their own digital services.

 

Unlocking commercial opportunities

Legacy revenue streams have recently faced downward pressure and profit lines have begun to diminish for banks. Banks now need to ensure their digital ventures are competitive enough to survive in an increasingly crowded digital marketplace.

Open banking technology helps improve customer value and engagement — crucial as seven in 10 (70%) financial executives believe that the pandemic has increased focus on the customer experience.

It also provides the opportunity for banks to identify customer needs and deliver a personalised proposition shaped to each individual. For example, through account information services, banks can create bespoke user experiences which keep customers coming back. In addition to this, financial institutions can use personal finance management technology to engage with and create value for the customer — giving them invaluable insights to boost their financial health and identify risk areas.

 

Empowering operational efficiencies

Historically in banking, customers were required to transfer several onboarding documents — from proof of address to citizenship status. Not only was this a drain on the customer, but at the other end banks had to manually review and assess the documents provided.

Open banking can expedite everything from customer onboarding and due diligence to risk assessment processes. It simplifies the process for the customer as well as increasing operational efficiencies on the bank’s end, by allowing them to quickly retrieve customer information through connections to their primary bank.

Now customer data can be fetched in real-time and in a machine-readable format, financial institutions can onboard quickly and with significantly lower risk. With 68% of financial executives believing there has been a renewed focus on profitability since the pandemic, lowering costs and enabling efficiencies wherever possible will be make or break for some institutions.

The good news is that the benefits offered by open banking are now also coming to business accounts. At Tink, we are already live with this in the UK and Sweden — enabling companies to leverage business account data to create the same seamless services and enhanced user experiences for business and individual account holders alike. And in a world where customers are actively consenting to access their financial information to get better services, requesting that consent to enable open banking payments and transfers is a natural next step

 

The industry is just at the start of the open banking journey

The appetite for leveraging open banking technology is accelerating, as it climbs even higher on the agenda of executives. Over two thirds (68%) of financial executives surveyed across Europe say that their interest in open banking has been piqued by the pandemic as they recognised its potential to lower risk, anticipate financial distress, increase sales, and enhance customer experience.

As the dust settles, one thing has become clear – open banking has emerged as a vital enabler of gaining a competitive advantage for financial institutions, by improving the customer experience in a post-pandemic world.

To learn more, read Tink’s open banking report ‘Open banking in a post-pandemic world’, here.

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