By Tim Rutten, VP Strategy, Backbase
What will set you apart in today’s banking world? The secret to sustained success comes down to one thing: the customer experience. And it’s here that the new breed of insurgent neobanks are streaking ahead of their incumbent rivals.
The insurgent threat
Fast, attractive and easy-to-use offerings are helping challenger banks around the world to grab market share.
New Accenture research suggests digital-only banks operating in the UK could almost triple their global customer base within the next 12 months, from 13 million today to 35 million customers. Challenger banks are acquiring customers at a current growth rate of 170% and have increased their average deposit balance fivefold in the first half of 2019. Delivering a better customer experience has also gained the digital-only banks an average Net Promoter Score of 62. Traditional banks are languishing on just 19.
Digital challengers are even making headway in the battle for US core banking services, such as mortgages, deposit accounts, payments and small business lending, notes a recent Financial Times article. Take the mortgage market, where the top three banks’ share of home loan origination fell from 49% in 2010 to 19% in the first half of this year. They have now been surpassed by online-only provider Quicken Loans, which last year became the country’s largest mortgage lender.
Digital banking is the means, not the end
With insurgent neobanks nipping at their heels, incumbent banks are waking up to the need to change.
To compete against the new wave of smart and agile challengers for today’s more tech-savvy customers, it’s tempting for traditional banks to think all they need to do is pivot towards a digital delivery model and invest in better technology. But if an incumbent eyeing its neobank rivals thinks the defining characteristic is the tech, it has missed the point. Yes, technology is vital. But it’s the means, not the end.
The real differentiating point is that neobanks put customers first. They use new technology and its possibilities to provide customers with a better experience, one that matches their needs and lifestyle. If incumbent banks don’t do the same, they will wind up with caricatures of neobanking models that fail to generate customer enthusiasm or loyalty.
Discover what customers value and give them more of it
Banking is seen by most consumers as a chore, more than anything. So enhancing the customer experience goes a long way. And it’s clear that traditional banks need to develop more efficient and appealing digital delivery mechanisms that can match up to what consumers receive from other institutions.
The success of their digital transformations though lies in the firms’ approach.
Too often banks’ digital projects become bloated and unfocused, as multiple stakeholders with contrasting views get involved in the decision making. In all the noise, the teams risk losing sight of their customers. Projects become bank-led, rather than customer-driven.
Instead, banks must learn to build products and services around a personalised, behavioural-based view of their customers – to give them what they want, when and how they want it.
Flip the product design
How do you do that?
Instead of designing products and services then selling them to customers, flip the process so developments are dictated by them. Collaboration – where banks use ongoing customer feedback loops and analytics to inform key design and production decisions – produces something customers actually want.
Ultimately, if customers don’t like or interact with what you design and build, it will be a wasted effort. Listening to customers’ voices takes the guesswork out of the process.
Constantly soliciting, and incorporating, clients’ feedback also helps banks stay more agile and responsive. Think more evolution, not revolution. It’s better to do lots of frequent updates based on customer feedback rather than sweeping changes which, by the time they come to market, might already be behind the curve.
In the digital world, consumers are used to regular, small-scale changes to their user experience, rather than massive redesigns once every two years. Apple, Amazon and Spotify constantly tweak their user interfaces to give customers a fresh, more engaging experience and challenger banks like Revolut do the same.
Spend too long on the design and implementation process – as traditional banks tend to do – and digital projects risk becoming overly ambitious and unwieldy, resulting in a disappointing end-client experience.
Value of a single customer view
Another major challenge banks must solve is their capabilities around centralised customer data.
Neobanks started with a clean database of client records. All their subsequent touchpoints, and the products customers own, are built on a single client view, allowing challenger firms to create more personalised, data-driven interactions.
Incumbent banks tend to be saddled with legacy databases spread across multiple product and business line silos. Creating a holistic profile of each individual customer that different parts of the organisation can access requires major, and expensive, data cleansing programmes. Yet without it, banks will struggle to deliver the sort of seamless, personalised, omni-channel experience customers have come to expect, and that provide the valuable cross-sell and upsell opportunities that will fuel their future profitability.
Consumers want that personal touch, and the first step is to make sure you have all the data relating to each customer on a central profile. Tailoring the experience to match the client will help to retain them as customers. For example, people from different ends of the age spectrum are likely to have a very different idea of what good service means.
Build on the customer relationship
Survival depends on embracing a customer-first mindset. Incumbent banks with a business-as-usual attitude may not disappear in the next year or two, but over the medium to longer term change will come. Yes, most consumers’ preferred primary account is still held with a traditional bank today. But digital-first banks though are gaining momentum, fast.
Incumbents need to take advantage of this window of opportunity. For the time being, they have much broader and deeper product offerings than their digital-only rivals. Together, this gives the banks multiple daily touchpoints and more ownership over the customer relationship.
The breadth and frequency of these interactions are a golden opportunity to strengthen and build on those relationships and make use of the data they produce.
More positive engagements will depend on putting customers front and centre of everything you do. That means making the customer’s voice the most important in any discussions about your digital transformation journeys. Banks that embrace such a customer-first mentality will have a far brighter future.
THE RISE OF CHALLENGER BANKS AND HOW LEGACY BANKS ARE TRYING TO KEEP UP
Jean Van Vuuren, Regional VP for UK, Middle East and South Africa at Alfresco
The finance world has been going through major changes in the last decade and many banks have become technology companies in almost every way. From online banking and apps to track activity, to the closing of high street branches and the rise of online only banks, this is a global trend that has been hard to miss.
Despite the introduction of challenger banks to the industry, many of us still rely on large, traditional banks to keep our hard-earned money safe. So how do these institutions take inspiration from the new emerging banks and put it into practice whilst keeping themselves relevant to a society that is increasingly reliant on technology? And what is next in the wave of digital transformation for financial institutions?
Using AI as part of the customer experience
Banks prioritising the customer experience has increased by leaps and bounds in the last 5-10 years, but it doesn’t just end with the launch of an app or the re-design of an online experience. The customer experience needs to be revisited regularly and continually play a core role in the adoption of the latest technology available.
For example, the future of AI in the banking world is very exciting and is completely transforming the customer experience. Voice banking, facial recognition and automated tellers can help create a completely personalised experience for each customer. Someone could walk into a high street bank, AI sensors at the door could use facial recognition to let the teller know who has arrived and they could automatically pull up all the information about their account without having to ask for their bank card or details.
As technology gets more sophisticated, this opens up possibilities for banks to focus on advising customers rather than spending time on transactions and processes.
Trusting the security of the cloud for confidential documents
The cloud has completely transformed the way in which we store information on our smartphones, computers and within the enterprise. However, as with any technology it comes with potential security risks. Trusting a third party with your data feels risky in most industries because you no longer feel in control of it, but banks are often trusted with our most precious data – not to mention our money. Therefore, maintaining confidentiality is of upmost importance to banks in order to maintain the trust of their customers.
Financial institutions should make sure that they are not relying on security embedded in cloud platforms to do the heavy lifting. Implementing governance services that provide security models, audit trails and regulate access – even internally, and confidently demonstrate that compliance is key for an industry with so much access to personal information. Whilst working in the cloud offers flexibility, it needs to be made secure with intelligent security classifications and automatic safeguarding of files and records as they are created.
This also brings up the issue of legacy platforms from a security and feasibility standpoint. Fund management companies find that legacy platforms are very expensive and not cloud ready. There is very little room for innovation and it is hard to adapt them to meet customer demands. Even if a fund management company has migrated to a Saas or Paas solution, quite often regulatory obligations and the potential dangers posed by hacking and data breaches mean that they sometimes go back to using an on-premises solution. Instead of backtracking, financial institutions should spend time to understand what the best cloud option for them would be and how they would implement it within the confines of governance and compliance.
Discussing going paperless in 2020 may seem like going back to the past, but for many financial institutions making the transition to fully paperless operations is still a work in progress. This is also a key area where challenger banks which have never had paper-based processes have an advantage, they don’t have to adapt simply because they were born paperless. There is also a new generation of consumers that embrace and often expect paperless banking.
While the Fintech industry is intrinsically paperless, banks are still adapting to phase out paper support, but this transition should be an integral part of updating the customer experience. The paperless movement involves moving from simply depositing checks via smartphone to a complete digital experience from end-to-end.
Going paperless also provides an added layer of security in accordance with a rising tide of regulations and government mandates. With digital records, automated management processes allow companies to set up rules around metadata to file records, put security procedures around them and also deleting personal information within retention regulations.
Keeping pace with challenger banks who are born of today’s technology
In recent years, the introduction of technological advances such as digital ID verification, e-signature and risk analytics are transforming the way financial service providers interact with their customers. New challenger banks build whole systems in as few as two weeks and automate as much as possible. By their very nature, challenger banks are pushing their competitors to be more agile and they are growing exponentially, something which the high-street banks had underestimated when they first entered the market. Created for the digital first generation, challenger banks won market share by putting customer-centric products at the heart of their business. They are also able to improve the product and the user experience quickly according to customer feedback.
Mobile banking innovators are completely disrupting the market and are increasingly leveraging these new technologies to fully digitise their processes, enabling them to deliver new and faster mobile services entirely tailored towards the needs of their customers.
HOW EMBRACING COLLABORATION CAN DRIVE INNOVATION FOR SMALLER BANKS AND BUILDING SOCIETIES
– Simon Healy
Consumer demand for digital banking products is high. As recent Unisys research shows, half of potential customers say the freedom to open and manage accounts online is a key driver of choice – while a third want a mobile app. So, if banks want to keep attracting and retaining customers, digital has to be on the agenda.
Unfortunately, smaller banks and building societies are facing some serious challenges when it comes to delivering the necessary level of digital innovation. At the same time, competition in the banking sector is fierce, increasing the pressure even further. Something has to change.
Understanding the competition
Digital-first neobanks have taken the market by storm in recent years, reimagining how current accounts function and offering innovative services through app-only banking. Customer expectation around digital banking has broadly risen as a result, with these capabilities felt to be a ‘standard’, rather than something that sets a bank apart.
Well-established high street banks – most of whom have a significant number of customers, as well as deeper pockets than your average building society – are also investing heavily in digital capabilities. And all the while, non-bank brands are circling the sector, with many big-name retail technology players expecting to enter the market over the next few years.
Combined, this places serious pressure on building societies and smaller banks, many of whom have limited investment budgets, a smaller pool of innovation resource, and a historical reliance on manual processes.
The value of trust
But – as Unisys research reveals – it’s not all doom and gloom for these institutions. While smaller banks and building societies might not have the large investment pots or the internal resource to accelerate digital innovation, they do seem to have strong reserves of customer trust to build on. In the building society sector, for example, nine out of 10 current customers still expect to be a building society customer in the next five years, citing trust in the brand as a key driver.
Meanwhile, customers are more likely to want a digital account offering from a building society than a neobank, highlighting a clear opportunity for building societies to seize – if only they can find the digital fuel to drive their innovation forward.
Embracing Open Banking to drive innovation
Once upon a time, product innovation in the banking sector was an inward-looking and investment-heavy process. But now, with the introduction of Open Banking, that could change. Over 60% of consumers who know what Open Banking is believe it’s key to attracting new customers. And with its introduction, there’s a real opportunity for smaller players to develop their products in a new way, delivering fresh customer experiences by integrating with other providers and technologies.
The beauty of this approach is that better customer service (and a broader product offering) can be achieved by collaborating and integrating with other providers, rather than developing the technology in house. As such, smaller banks and building societies won’t be restrained by their limited budgets – instead, they can simply focus on delivering the products their customers need, and the high-quality services they expect.
Although we’ve only seen fairly limited account aggregation so far, this could be taken much further in order to drive significant customer revenues. For example, Open Banking can provide the framework and the safe transmission of data for Embedded Banking, in which banking services are an integrated part of a broader customer service journey.
Most consumers already have some experience of this – just think about how payments function seamlessly in a service like Uber. But this functionality could be pushed much further. Applied in the right way, consumers could be granted the ability to take out a car loan as part of their search for the perfect vehicle. They could even secure a mortgage with minimal hassle during an integrated, online house purchase.
The appeal of this is clear. Embedding banking could significantly reduce friction and empower customers to receive the services they want, where they want them, and how they want them. And this could serve as a valuable distribution opportunity for banks and Building Societies struggling to find the investments needed to keep up with the digital innovators.
Exploring the possibilities of collaborative harmony
It’s an exciting opportunity that doesn’t only apply to personal finance: Unisys research shows that consumers would like to see building societies offer more business banking products. With an Embedded Banking approach, businesses could benefit from the ability to access an integrated bank account and accountancy solution, for example. It’s an area smaller banks and building societies could seek to develop.
Of course, this requires a degree of collaborative harmony, with different organisations working in tandem. Yet the general sense in the industry does seem to be a move towards this, in recognition of the fact that outcomes can be improved across the industry by taking a collaborative approach. Ultimately, nearly all financial services know that digital transformation is a vital undertaking to remain competitive – and this can be achieved more effectively by working in tandem with one another.
However, this isn’t a one-off assessment – smaller banks and building societies should keep one eye on the horizon, and reflect on how emerging capabilities like Open and Embedded Banking can help to ensure they don’t lose ground in the future. Customer sentiment is clear, and it’s apparent that consumers want smaller banks and societies to do well – it’s simply a case of embracing the right digital drivers to succeed.
THE END OF YEAR TAX CHECKS THAT COULD SAVE YOU THOUSANDS
Charlie Reading, Founder and MD of Efficient Portfolio After HMRC’s tax return deadline at the end of January, it can be...
RISK VS REWARD: IS AI TAKING OVER?
Xavier Fernandes, Analytics Director at Metapraxis A study by Oxford University academics into “The Future of Employment” in 2013 prompted...
HALO TRUST USES ADAPTIVE INSIGHTS FOR STRATEGIC BUSINESS PLANNING
Cloud-based financial planning helps HALO Trust deliver greater benefit to communities affected by war Adaptive Insights, a Workday company,...
IS DATA PROTECTION AND PRIVACY RELEVANT ACROSS ALL STRATA IN INDIAN SOCIETY?
A Study by Pensaar Design With CGAP Pensaar Design has been working on a research study with CGAP to better...
THE RISE OF CHALLENGER BANKS AND HOW LEGACY BANKS ARE TRYING TO KEEP UP
Jean Van Vuuren, Regional VP for UK, Middle East and South Africa at Alfresco The finance world has been...
NEW STUDY: AI HELPS ORGANISATIONS GROW PROFITS 80 PERCENT FASTER
Global research highlights how organisations are capitalising on emerging technologies to enhance finance and operations for competitive advantage Organisations...
UK START-UPS MUST MAKE THE MOST OF A SMALL WINDOW TO CAPITALISE ON INVESTMENT OPPORTUNITIES, FOX WILLIAMS WARNS
Despite rising investment, Brexit and growing interest from tech giants could cut off start-ups’ opportunities in 2020 While a...
XPEDITION UPGRADES MORE THAN ONE MILLION OPENWORK CLIENTS TO THE DIGITAL AGE
Xpedition, leader in the implementation of cloud-based business applications, has deployed a new system which has digitally transformed the customer...
ORACLE AND MICROSOFT BRING ENTERPRISE CLOUD INTEROPERABILITY TO EUROPEAN CUSTOMERS
Today, Oracle is announcing the continued expansion of its cloud interoperability partnership with Microsoft with a new cloud interconnect location in Amsterdam....
THE EMOTIONAL AND FINANCIAL COST OF WORKING WITH OUTDATED TECHNOLOGY
Slow Tech Could Waste 24 Hours of Worktime a Year In this digital age, businesses are hugely reliant on technology...
HOW TECHNOLOGY IS FUTUREPROOFING STOCK MARKET TRADING
Tony Shaw, Executive Director, London Office and Head Sales UK & Ireland at the Swiss Stock Exchange Markets are shifting,...
REVEALED: THE TOP 10 COUNTRIES THAT ARE REDUCING THEIR RELIANCE ON OIL
Ben Lobel, Copywriter at DailyFX New tool charts global commodity trading over the last decade The UK has reduced its...
‘MOVE FAST BUT DON’T BREAK THINGS’ – WHY FINTECHS WILL COME TO LOVE REGULATION
Alex Johnson, Director of Portfolio Marketing, FICO The guiding ethos of fintech is move fast and break things. It’s...
OFFSHORE COMPANY FORMATION TACTICS FOR SMEs
James Turner, Director at company formation specialists, Turner Little Starting a business brings with it its own set of challenges,...
EMV® 3DS – PAVING THE WAY FOR SEAMLESS AUTHENTICATION
Jean Fang, Product Manager, FIME The growth of e-commerce, m-commerce and remote commerce transactions is showing no signs of...
WITHOUT C-SUITE COLLABORATION DIGITAL TRANSFORMATION IS UNLIKELY TO BE SUCCESSFUL WITHIN FINANCIAL SERVICES
By Nick Gold, founder and Chief Executive of Speaker’s Corner A path to digital transformation Mapping a clear path...
LOOKING BEYOND THE PAYMENTS PRICE TAG
Rob Straathof, CEO, Liberis In the face of tough competition, cutting costs often seems like the quickest and easiest...
MITEK SETS NEW IDENTITY VERIFICATION STANDARD WITH ONE STEP LIVENESS DETECTION
Omnichannel Liveness Detection ensures more effective, safe and simple identity verification Mitek (NASDAQ: MITK, www.miteksystems.com), a global leader in digital identity...
HOW TO MERGE YOUR FINANCES AS A COUPLE?
By Nelisiwe Ndlovu, Certified Financial Planner at Alexander Forbes There is never a good time to discuss finances with...
INTERNATIONAL BANKING NETWORK IBOS ASSOCIATION APPOINTS NEW MANAGING DIRECTOR
International banking network IBOS Association is delighted to announce the appointment of its new Managing Director, Manoj Mistry. Formerly Managing...