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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

WHY THE TIME IS NOW TO BANK BEYOND BORDERS

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by Lili Metodieva, MD of Monneo

 

As our world becomes more interconnected, so too does the need for banking systems to follow suit. In the past, businesses and individuals were often restricted to banking in a single country, but the rise of borderless banking is enabling both to benefit from greater financial freedoms. In this article, we will examine why this trend is so important and explain how Fintech companies are helping to make it possible.

 

What is borderless banking?

Simply put, borderless banking refers to any bank account, which allows users to spend, send and receive money across different countries and currencies, without incurring heavy fees. The concept has become increasingly popular in recent years, with more people now working in cross-border job roles and with many businesses requiring capital in a different currency than that of their country of origin.

For customers, borderless banking is making cross-border financial transactions more efficient and cost-effective. Through its rise, businesses and individuals can gain easier access to international streams of capital, which is crucial in this current moment of economic uncertainty. In fact, 74% of companies say cross-border payments have helped their business to survive [1].

 

Where do IBANs come in?

International Banking Account Numbers (IBAN) play a crucial role in facilitating borderless banking. The globally recognised system enables cross-border transactions to happen safely, by providing each international bank account with its own unique 36-digit alphanumerical code. On account of this code, financial institutions can quickly identify where funds are coming from, as well as where they’re going to.

More recently, providers such as us have been able to deliver Virtual IBANs (vIBAN). Working alongside a network of well-established European and International banks, we’re able to offer businesses a single platform interface that consolidates the management of all IBAN accounts. In turn, our multi-currency service makes conducting global financial transactions incredibly straightforward.

 

How has Brexit affected borderless banking?

The COVID-19 pandemic has accelerated the growth of borderless banking and services related to it, but other developments, such as Brexit are beginning to stand in its way. Most notably, the drawn-out withdrawal process has seeded a growing reluctance amongst risk averse, larger organisations to settle transactions using UK bank accounts or IBANs, due to unfounded concerns around regulatory complexity.

Despite leaving the EU, the UK remains a member of the Single Euro Payments Area (SEPA), so it’s unclear why these concerns around British IBAN accounts exist. Regardless, this unfortunate development must be addressed quickly as it has the potential to adversely affect the livelihood of businesses and individuals at a time of critical need.

 

What does the future hold for borderless banking?

There’s clear demand for borderless banking and borderless payments, but the discrimination of certain IBAN accounts represents a major obstacle, which could stand in the way of their widescale adoption. Moving forward, there needs to be a push towards borderless IBANs, which will make international financial transactions more reliable. At the end of the day, this is what IBANs were originally created for, so it’s important the current problems are rectified quickly.

To ensure this can happen, the industry needs protection and clarity from regulators. Likewise, it’s now time for membership organisations to stand up on behalf of the sector and lobby for the financial inclusion of businesses.

If the confusion regarding UK IBAN accounts can be sorted in a timely manner, businesses across the nation, as well as those further afield can look forward to a future of more streamlined and effective financial services. With this support, the diverse sector can deliver further access to innovative financial services and products, which improve outcomes for businesses and consumers alike.

As a sector, Fintech has the potential to provide vital assistance to the wider economy, particularly in an era of increased cross-border business. At Monneo, we’re committed to being part of that change and as a part of organisations like ‘Accept my IBAN’, are working towards reporting and ending IBAN discrimination.

[1] – https://www.mastercard.com/news/research-reports/2021/borderless-payments-report/

 

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Banking

IT’S TIME FOR BANKS TO SIT THEIR CUSTOMERS DOWN AND TALK OPEN BANKING

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Eugene Danilkis, CEO at Mambu

 

We are living in an experience economy, and banking is no different. Customers need innovative payment and finance management solutions. New entrants are edging into the landscape and challenging existing players. This should mean users have a better view of their finances and the tools they need to manage their money – but banks are failing to deliver.

Personal finances are a complex beast, emotional pulls are strong, and the worry of financial security is always on the mind. It’s the job of banks to be the shoulders customers can lean on and trust.

Open banking was supposed to take this to the next level, enabling banks to deliver personalised products and services based on improved data sharing and customer insights. But three years on, adoption remains sluggish. So, why is open banking failing to live up to its promise?

 

A missed opportunity

Open banking was introduced to the UK in 2018, but consumers are still mired in confusion as to what it means and how it helps them. According to Mambu’s global open banking survey, 61% of consumers say they’ve never used open banking, despite more than 8 in 10 using one or more mobile banking apps.

Eugene Danilkis

This is a problem for banks and consumers alike. Lack of understanding around the technology is hindering its adoption, despite this being in the best interests of both. By enabling the secure sharing of financial information, open banking creates an improved customer experience. Not only does this minimise friction and make online payments faster and easier, but allows for personalised services and greater automation, enabling customers to take advantage of tools like budgeting apps.

For banks, open banking is an opportunity to build innovative new products that will improve the customer journey, helping them retain accounts and acquire new ones. By collaborating with third parties, banks can hyper-target customers and build services that address specific user needs, increasing customer satisfaction and in turn brand loyalty.

It’s true there’s been a recent spike in open banking users. According to Juniper Research global, open banking users rose from 18 million in 2018 to 40 million in 2021. But this can be traced to the necessities of a pandemic rather than any sudden clarity in communications.

 

Putting customers at the heart of communication

Mambu’s research shows more than half of consumers (52%) have never heard of open banking. COVID-19 may have increased the uptake of the technology, but it hasn’t increased understanding among users.

So, what can banks do to encourage consumers to embrace open banking? Fundamentally, they must better educate their customers in terms they understand. This means talking to them like human beings, using clear and transparent language to simply explain the personal benefits open banking brings and why it’s really just smart banking.

The understanding gap between technology and terminology shows that consumer demand is there, but better communication is needed. Making sure consumers truly understand the tools they’re using, the control they now have over their finances and how open banking improves the customer experience is vital to dispersing the current fog of confusion. It’s the benefits of this technology that banks need to hone in on: customers ultimately care about what open banking can do for them and how it’s going to make their lives easier.

Centering the customer and their needs in this way will allow banks to fully realise open banking’s potential. The technology has already given them the opportunity to develop valuable services for customers that help build brand loyalty. But the industry has failed to put the customer at the heart of their communications and processes, and show them how much better banking can be.

 

Building trust

Key to reversing this trend is addressing consumer concerns around data privacy and financial safety. Yes, banks need to prioritise simplicity and clarity in messaging, but this isn’t an excuse to shy away from important conversations. Just because there’s an understanding gap around open banking doesn’t mean consumers aren’t switched on about tech and financial issues.

Mambu’s survey found nearly three in five customers have concerns about privacy and security in relation to open banking. So, it’s vital that banks provide reassurance and relevant information about data sharing from the outset if they’re to assuage these fears.

The industry can also encourage greater adoption by developing and improving open banking interfaces. Banks are the gatekeepers to how easily end-users can authorise certain actions, manage third-party access and navigate different open banking functions. If the interface is user-friendly, customers will have a better experience of the technology and be more likely to use and recommend these services.

 

Time to get talking

Customer communication is holding the industry back.. The ability of open banking to transform financial services is a concept that industry players are well-versed in. But the feeling isn’t mutual for customers.

Banks are failing to capitalise on the open banking opportunity by engaging with new and existing customers about what the technology can do for them. Debunking  common myths can open the door to increased growth and trust for banks, as they seek to open up new revenue streams post pandemic..

Make no mistake, open banking isn’t going away. But customers will if banks don’t get talking.

 

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