– Doug Gross, CEO of NGDATA
Personalised banking is nothing new. Few of us today may remember it, but there was a time when anyone could walk into the bank and have a chat with their bank manager to discuss their finances and impending life changes, or to discuss investment opportunities.
Somewhere along the way we’ve lost that intimate connection between banks and us, their customers. Yes, we have phone, internet and even banking apps, but for all their convenience these are faceless, impersonal and merely transactional services. In many ways they are a poor replacement for the two-thirds of bank and building society branches that have closed over the last 30 years. That’s because these services rarely provide the personalised customer service and relevance that consumers have come to expect from other areas of their lives.
A new breed of challenger banks have been quick to fill this void with a range of highly personalised services, which is one of the reasons why they have managed to capture a quarter of millennial customers. It’s only now that traditional banking institutions are waking up to the opportunities of hyper-personalisation.
The personalisation revolution
Banks can’t say they weren’t warned. Back in 2015, one estimate suggested that European banks could lose out on €22bn of revenues to big technology groups offering a range of digital-first financial services. A year later, NGDATA found that less than 30% of customers think their bank’s offers are customised for their individual needs. Meanwhile banks market their new product offers as ones specially tailored to customer needs, let alone their communication with said customer – so where has this perception gap originated?
We need to go back to the beginning and rethink what we truly mean by ‘personalisation’. It could be something as simple as Wells Fargo’s customisable ATM experience which displays the customers “favourite” services on the screen. But the most effective personalisation is when banks provide the most relevant interactions, services and marketing to each customer at every touchpoint and at the right time.
The benefits of personalisation are clear. McKinsey has found that full personalisation can deliver between 10 and 20 per cent more efficient marketing and a 10 to 30 per cent uplift in revenue and retention. Singaporean bank DBS, meanwhile, claims to make more than £700 revenue each year from its digital customers, more than double what it makes from traditional customers.
This is to say nothing of the increased customer loyalty that comes from delivering a fantastic customer experience. This is not a particularly new concept. In 2016, KPMG cited personalisation as the first of its six pillars for banks looking to unlock rapid growth.
It’s no wonder traditional banks have spent the last few years upgrading their IT infrastructure to provide the ability to capture and analyse huge amounts of personal data on which hyper-personalisation depends. But merely having the data isn’t enough to create a winning customer experience: there are many other questions that banks must solve before they make hyper-personalisation a reality.
Tapping into “customer DNA”
Technology now enables banks and other financial institutions to understand each customer’s unique “customer DNA”, enabling them to tailor their communications and financial products to every individual – a process we call “hyper-personalisation”. This means delivering truly contextual personalised services, which improve the user experience based on a customer’s objective.
While this is key to increasing a bank’s engagement with customers, any investment must be focused on delivering true value. Personalisation for its own sake could hurt rather than help a bank retain and grow the customer base – especially if they take a cavalier approach to people’s data security.
Banks must therefore find a way to maximise the value of the data they hold, while staying onside with data protection regulations such as GDPR. They must also ensure that they strike the right balance between relevance and the “creepy factor” of seeming to know too much about customers’ financial affairs. How, then, can banks balance the need for privacy while delivering the next generation of hyper-personalised services?
The 360o customer view
There is so much data being generated by and about customers today that it can be nearly impossible to gain a complete view of them. And, because data is often generated and kept within business siloes, it takes a great deal of time to merge data into a singular customer view that is still relevant and offers actionable insights.
By utilising an intelligent customer engagement platform that merges operational and marketing data, organisations can merge thousands of metrics into a singular, comprehensive view of enterprise customers on the individual level that is required for personalisation. With this approach to teasing out customer DNA, banks will gain maximum visibility into customer behaviour, enabling them to deploy customer experience campaigns in a whole new way.
Only when banks gain a holistic view of customers can they deliver the personalisation that these consumers crave: for example, by being able to provide hyper-relevant marketing and products that increase engagement and conversion rates, banks are able to reduce irrelevant communications, making customers feel valued and understood.
The bank manager of old knew that time spent on face-to-face engagement with customers was never wasted, leading as it did to opportunities to sell new services, or simply to strengthen loyalty with high-value customers. Thanks to technology, we can recreate these relationships – and, indeed, make them stronger than ever before.
WHY DIGITAL TRANSFORMATION IS CRUCIAL FOR BANKS
David Murphy, Managing Partner, Financial Services EMEA & APAC at digital consultancy Publicis Sapient
Over the past five years, disruptor banks such as Monzo, Revolut and Starling Bank have upended the idea of a bank and have challenged the longstanding dominance of traditional players.
Through a digital-only approach, challenger banks have grown rapidly by exploiting poor customer service and lack of innovation in many parts of the industry. They have uprooted the need for bank branches by making the very idea of queueing in a physical location to transfer money or waiting on hold on the telephone for customer support seem unusual or eccentric.
As a result, the market share for current accounts of the big four legacy banks (Barclays, Royal Bank of Scotland/NatWest, HSBC and Lloyds) has lost ground, from 92% of all bank customers a decade ago to around 70% today. Research has also found that digital-only banks Monzo and Revolut are on track to triple their customer base to more than 35 million over the next 12 months.
In the face of new competition, many banks already realise that they can no longer rely on old practices and that they must digitally transform. However, transforming an embedded culture and organisational structure is easier said than done. It requires traditional banks to completely rethink their practices in order to meet shifting customer preferences and the emergence of new technologies such as banking apps.
At Publicis Sapient, we have outlined three clear models of digital business transformation in order to help banks compete against digital-only banks.
When transforming for the digital era, banks must gradually change mindset and infrastructure, working towards a more effective structure. This is fundamental to the future success of any cultural approach, as moving too fast can produce cultural backlashes that can hold back innovation and adoption of new ideas or practices.
Moving slowly is only one part of this approach. In order to ensure that company mindset truly evolves, banks must also revisit their ethos and structure, invest in communication and training, and create a clear and comprehensible digitalisation plan. As part of this, it’s crucial to eliminate silos and develop robust strategies for employees to get behind their new plan.
Fundamentally, the evolve approach requires banks creating a “movement” that facilitates change across the wider organisation. This requires banks demonstrating the value of digital transformation to employees across multiple offices and organisations.
The jump method centres on platform modernisation. In other words, this approach is less about incremental change, and more about ‘jumping’ in feet first. It involves creating a new shell onto which the existing business can migrate. In order for this method to be successful, a step-change in cost-to-income ratio and customer experience is crucial. By adopting new strategic platforms and ways of working, with continued but reducing connections to the existing business systems, this model requires a willingness to trial new approaches and, in turn, decommission the legacy systems.
Banks that follow the ‘attack’ approach try to recreate the dynamism of fintech startups within their organisation. This can mean creating either an internal innovation lab or going into a partnership with an external technology provider to create a separate, almost rival banking platform. Initiatives such as these allocate space to incubate ideas internally with considerable time and investment. They also overcome the cultural issues that big organisations come up against by building small teams in the company to develop new, competing platforms. However, they must be customer-oriented: new, self-contained enterprises within the business should focus on addressing a unique customer need rather than delivering a specific product.
When digitally transforming, legacy banks need to ensure that they implement a strategy that works best for their organisation. However, most banks when considering where to invest their change budgets should take a “portfolio approach” looking across their business lines to see where it is most effective to Evolve and look for opportunities to either Jump a business line such as Payments to a new platform or even create separate digital enterprise through an Attack approach. Essentially, banks must take a holistic view on changing both cultural attitudes and structural problems.
THE ‘LEGO-IFICATION’ OF BANKING IT AND THE RISE OF DIGITAL FINANCE ECOSYSTEMS: FOUR PRIORITIES FOR BANKS IN 2020
Danny Healy, financial technology evangelist, MuleSoft
The advent of the open banking era and continued emergence of fintech has forced customer experience up the banking agenda. According to McKinsey, of the 50 largest global banks, three in four have now pledged themselves to some form of customer experience transformation.
Understanding the importance of customer experience is one thing, being equipped to deliver a good one is another thing entirely. As banks look to technologies such as multi-cloud and AI to support more sophisticated customer experiences, their IT teams face an uphill struggle to integrate these initiatives with their existing systems. Across all industries, more than four in five (84 percent) of IT leaders claim these challenges are putting the brakes on their organisation’s digital efforts.
To get around this challenge in 2020, banks now need to focus on re-imagining their IT departments in order to unlock their digital capabilities and empower business-wide innovation. Here are four key areas that banking IT teams will need to focus on in the year ahead to make this a reality.
Repackaging IT into reusable building blocks
IT efficiency is crucial to the success of digital transformation initiatives; it’s one of the main reasons why small, nimble fintech companies have been able to steal a march on their more established rivals. As such, banking IT departments are under substantial pressure to deliver more, faster. However, IT can no longer keep up with the demands of the business; little over a third (36 percent) of IT professionals were actually able to deliver all projects asked of them last year.
To get around this growing IT delivery gap, we’ll see IT move away from trying to deliver all IT projects themselves in 2020. The IT team’s role will evolve to changing, operating and securing the bank’s core IT assets along with building and managing reusable APIs, exposing digital functionality that the rest of the business can consume to create the solutions they need. Essentially, IT begins to create new building blocks (APIs) that can empower both the technical and the broader lines of business users to innovate and build new digital banking solutions without compromising the core IT estate. Banks have already been compelled to create API strategies to open up collaboration opportunities with third parties; this year, we should expect to see them apply the same principles internally. Rather than being the bottleneck that prevents banks from launching innovative new products, IT can empower them to digitally transform and innovate faster than ever before, shifting from being an “all doing” to an “enabling” organisation.
A wise investment in AI
Banks are investing more in AI each year, as they look to use the technology to transform traditional banking processes. In principle, AI has the potential to revolutionise everything from credit decisions through to risk management and trading platforms, alongside the capability to offer highly personalised customer experiences. Yet for most banks AI hasn’t yet reached its full potential, as data is locked up in siloed systems and applications.
In 2020, we’ll see banks unlock their data using APIs, enabling them to uncover greater insights and deliver more business value. If AI is the ‘brain,’ APIs and integration are the ‘nervous system’ that help AI really create value in a complex, real-time context.
Harnessing the power of containerisation with APIs
Despite taking a more cautious approach to the cloud than other industries, many large banks are now using multiple clouds to support the delivery of both internal and external services. But multiple clouds are difficult to manage and being able to move workloads between them remains a significant challenge.
This year, we will see banks begin to use APIs in tandem with containers to navigate multi-cloud complexity. APIs will unlock the data and unique functionalities of applications residing in multiple cloud environments, while containers will neatly package up code and all its dependencies, so the application runs quickly and reliably from one computing environment to another. For example, HSBC has built a multi-cloud application network to meet growing customer demand. Turning to the cloud to accelerate IT delivery, HSBC has built and published thousands of APIs that were deployed across multiple environments using containers to unlock legacy systems and power cloud-native application development.
Open banking and the rise of the digital ecosystem
When it first appeared, open banking gave rise to all manner of opportunities for banks to collaborate with third parties on shared services. This year, we can expect to see banks take this further, and experiment with broader digital ecosystems where their services seamlessly fit in with those from other providers across diverse industries. This is the start of a fundamental shift from traditional financial services, where banks look to ‘own’ customer engagements entirely. In the new model, each of these provider will coordinate their financial services across the same ecosystem, without ever ‘owning’ the customer.
Banks will thereby look to extend their own capabilities and customer data to other businesses via APIs. For example, Mastercard has turned many of its core services into a platform of APIs, allowing it to create the Mastercard Travel Recommender, which allows travel agents and transportation providers to access customer spending patterns and to offer customers targeted recommendations for restaurants, attractions and activities. Expect to see other financial services companies take this approach in the year ahead, along with focusing on providing an excellent developer experience around their APIs to drive competitive advantage.
The year of connectivity
Data and digital transformation are both well-established priorities for the entire financial services industry. As we continue into the new decade, attention will increasingly shift towards the connectivity that unlocks the value of data and underpins the success of digital transformation initiatives.
APIs will play the key role in meeting the banks’ new connectivity requirements. By reimagining digital assets as a set of digital building blocks, bankscan enable every stakeholder within the business to contribute to digital projects, democratising the ability to innovate. By doing so, they can transform the IT department from a cost centre into a source of value that will truly help to create the bank of the future.
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