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THE DIGITAL FUTURE IS TODAY: WHY THE FUTURE OF BANKS’ WILL HINGE ON CUSTOMER CENTRICITY AND SMART DESIGN

Nanda Kumar, CEO of SunTec

 

As the financial services industry continues to tackle short- and long-term challenges brought on by the COVID-19 pandemic market disruption, banks are facing a completely digital reality powered by accelerated digitalization.

Banks, which have for years relied on legacy technology and traditional processes, will be hard pressed to survive and remain competitive as new modes of operation amongst technology-driven, agile competitors push the pack forward. Banks will eventually face two options: embrace the methodologies of innovative market competitors, or risk losing long-term customer loyalty and thereby, revenue.

To build a secure future for themselves, banks must begin designing customer-centric solutions and making smart use of the assets and partners available to them. They must champion flexibility and scale to maximise the value they deliver, as they enter a new era of competition.

Banks were already under pressure to accelerate their digitalization efforts and revitalize the customer experience pre-pandemic, and COVID has forced their hand. According to a recent survey by management consultancy firm McKinsey,  the pandemic has not only accelerated client demand for digitally banking services, but clearly shown that bank customers are placing a higher reliance on their advisors during these uncertain times – bringing the importance of customer experience into sharp focus. It’s clear that banks cannot continue to make limited progress. It’s about a complete step change and an understanding that digital is now the norm, not a ‘nice-to-have’.

 

Customer and Competitor Pressures Mount

Especially during these disrupted times, the looming threat of customer recession and competitive challengers are catapulting banks’ technology projects – many of which are long overdue – into overdrive. As the Bank Governance Leadership Network (BGLN) recently highlighted,  COVID-19 has accelerated the industry pivot to digital, and new challenger banks and FinTech providers are expected to challenge the notion of  customer trust. While banks have understood the need for digital transformation for years, they now recognize the urgency to adapt so they can better manage rapidly changing customer priorities and market conditions.

With the entrance of technology goliaths like Google and Amazon, and user-centric banking and fintech platforms, like Venmo and PayPal, which leverage customer data to create not only reactive, but predictive customer journeys. Customers have come to expect bespoke and seamless user experiences, and as their expectations heighten, banks that don’t offer solutions that follow the entire customer journey will soon be left behind, ultimately forfeiting loyalty and retention in a generation of customers that values hyper-personalized experiences.

Digital is no longer an option for businesses – it’s an imperative. And none more so than banks. Most banking customers today would not even consider opening an account at a bank that did not have best-in-class digital capabilities.  It is critical that banks develop comprehensive plans that will enable them to accelerate their digital transformation initiatives and deliver a new level of personalized customer offerings. To do that, they will need to reimagine their holistic systems, processes, data and people.

 

Transforming the Core: Risk Reduction via Redesign

Though the ever-evolving demands of customer expectations and competitor innovation seem insurmountable, banks are actually well-positioned to compete. The key to reducing business risks lies within developing a clear digital strategy and redesigning core processes, leveraging their pre-existing data assets and partnerships.

By adopting a digital core and ‘hollowing out’ customer engagement functions from the core system, and managing it as a horizontal cross-enterprise layer, banks will be able to take a low-risk, modular approach, while offering enhanced product innovation capability, sophisticated customer data management, partner ecosystem and revenue management.

The digital core, which captures and meticulously logs the data from every customer interaction, relevant personal information, purchasing patterns, and more, is integral to improving customer centricity. By tapping into customers’ data, banks can leverage their information to meet their unique needs, create and bundle products, services and offers for any customer segment, and adopt relationship-based pricing strategies and new business models.

Furthermore, by utilising partnerships that maximise economies of scale, banks can quickly adopt new technologies, add more functionality, enhance the customer experience, provide customised internal and external products and integrated services. Most importantly, they can do this whilst maintaining ownership of the customer relationship and value prop.

 

Cloud: here today, and here to stay

The recent pandemic disruption highlighted the need for stable, reliable technology solutions that can weather market volatility. Especially as internal and customer functions faced increased risk and disruption, banks saw first-hand the need to embrace cloud capabilities to maintain a competitive edge.

Cloud computing offers banks the ability to innovate at faster and lower costs, increase the amount of services and offerings to customers, while monitoring and preventing revenue leakage. By reducing time to market and thereby creating new revenue streams, banks have the opportunity to accelerate their customers’ digital transformation journeys at an accessible price point.

Banks have begun to recognize the value that cloud infrastructure can offer their customers, and savvy organisations will take full advantage of cloud deployment’s benefits for their digital transformation projects across pricing, billing, product, loyalty, deal, offer, partner monetization, and tax management processes.

The opportunity for banks is to leverage the cloud’s flexibility, agility, scalability, high performance, security and strong reputation in handling large volumes of transactional data and functionality to translate it into value for their customers, instilling confidence in their ability to keep up with nimble industry players.

 

Keeping the customer at the center of design

In order to design solutions that keep customers content, banks musts assess the value that their products are offering to customers. With customer value, comes customer trust – and with trust, comes loyalty and ultimately business longevity. When designing solutions, banks must take similar strides to their fintech competitors – the most successful of which offer not siloed, but rather experience-based products and services.

Undoubtedly, the bank of the future will orbit around the growth of Solutions as a Service – providing hyper-personalized products and services for any customer segment, adopting relationship-based pricing strategies, and optimising billing processes. For banks to survive in this hyper-competitive market landscape, reinforcing value to customers will be paramount. Banks need to understand what customers truly want, and what they are trying to achieve with every interaction. Essentially, banks will have to shift their mindset to think like a customer, anticipate their needs, and restructure their traditional process to design holistic solutions catered to those needs.

Now more than ever, it is imperative for banks to focus on agility, scale, and speed to succeed in their digital transformation journeys. Driven by market competition and increasing customer demands, banks must build the bank of tomorrow, today – embracing the flexibility and cost efficiencies of partner models, existing data assets, and cloud computing to build experienced-based designs, deliver true value and ensure customer loyalty.

 

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Banking

REDUCING FRICTION ONLINE HAS BECOME BUSINESS CRITICAL

Andrew Shikiar, Executive Director at the FIDO Alliance

 

The global pandemic has pushed the importance of remote access and authentication right up the agenda for many businesses. All those occasions where people would normally show up in person to open a bank account or pick-up some high street essentials were simply not possible for large parts of the year. Even as restrictions have eased across the country, these kinds of face-to-face transactions remain an unappealing prospect or a last-resort to many.

Not surprisingly, this has led to unprecedented demand for online and remote services. This brings with it a host of challenges and opportunities, and we have seen many examples of companies brilliantly adapting and reacting to this new way of life. But one issue that businesses and individuals have been grappling with for years – that of frictionless transactions and authentication – has now been put under a brighter spotlight as it is increasingly critical to get right.

 

Friction impacts the bottom line

The core challenge facing businesses is how to strike the right balance between giving customers the best possible experience of online service, and the necessary regulatory and security implications that directly affect – and often contradict – that ideal user experience.

We’ve all likely experienced the very real kinds of friction I’m talking about – it’s the account you gave up on registering for, or the purchase you abandoned because the process was just too frustrating.

Friction like this has direct bottom line impacts through the loss of sales and/or disaffected customers –  and it is substantially more pronounced in the current climate. People have less money to spend, they are spending a greater proportion of this reduced pot online, and businesses are competing for their livelihoods to claim their share. Providing a frictionless experience can be the difference between success and failure.

 

Banking and retail lose out

Nowhere is this problem more keenly felt than in the retail and banking industries. Countless transactions simply don’t happen each year due to issues with passwords or mobile One Time Passwords (OTPs) at the point of signing-up or checking-out.

Data from Statista shows that 69.57% of digital shopping carts and baskets are abandoned and the purchase not completed. And Mastercard’s analysis estimates that up to 20% of mobile e-commerce transactions are abandoned or otherwise fail (e.g., from undelivered SMS OTPs) mid-way.

In addition, independent web usability research institute Baynard found that one out of five consumers abandoned their online shopping carts citing the checkout process as “too long and complicated”. That means 20% of customers taking their custom elsewhere, likely to a competitor, because the process presented too much friction.

 

Passwords are a major part of the problem

Organisations have struggled to strike that balance between frictionless yet secure online log-ins in large part because of historical dependence on passwords – which simply aren’t fit for purpose in today’s online economy. Passwords were designed to be simple but, as we can all likely attest, they have become incredibly cumbersome and difficult to manage.

The demands placed on consumers to remember and keep track of the array of different passwords they need, and the different requirements of password complexity which varies from provider to provider, is proving to be untenable.

Not only are passwords a major cause of consumers giving up on purchases or preventing them from signing up for new services, but they also fail in delivering on their primary objective: to protect accounts and sensitive data. All too often the password has proven to be a single point of failure, and one that is all too easy for hackers and fraudsters to get hold of – a trend accelerated by the coronavirus pandemic.

 

Reducing friction

There has been a move toward developing and adopting open standards that enable any online service provider to authenticate users in a way that is both highly secure and almost completely frictionless – with all major platform and cloud service providers coalescing around a common approach.

It’s clear from the way consumers have embraced using their fingerprints and FaceID to unlock their devices that simple, natural gestures work – and that they are often preferred over using a password. By adopting the latest authentication standards, organisations can enable their customers to use these same easy gestures on their every-day devices to prove their identity and approve even the most sensitive of transactions.

The standards also improve security by moving away from the traditional model where your password or similar piece of ‘secret’ information is stored on a server, to one where credentials are stored on an individual’s device. This means they cannot be phished or divulged through other means of social engineering, while also inherently stopping the large-scale breaches that impact millions or billions of users in one go.

Due to these developments, the kind of poor user experience that leads to abandoned shopping carts and lost customers during the sign-up process is completely avoidable. There is now nothing stopping banks, retailers, and a range of other businesses from offering a superior, and low-friction user experience while also maintaining the safety and integrity of the networked economy.

 

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Banking

BANKING ON THE FUTURE: WHY PAYMENTS TRANSFORMATION IS THE KEY TO SUCCESS

Simon Wilson, Co-Head, Payments at Icon Solutions

 

Standardisation, regulation and technological innovation means payments are well on the way to becoming instant, invisible and free. This is good news for everybody.

Well, not quite everybody. Banks are now faced with the significant challenge of transforming business models and legacy technology systems to meet the demands of a new era in payments.

Banking is historically a conservative and risk-averse industry where the pace of change varies between sedate and glacial. But now is not the time to ‘wait and see’ and finding the right approach to payments transformation must be the immediate and fundamental priority for banks.

 

Understanding the need to transform

Firstly, we must ask: Why has payments transformation become an urgent priority?

For one thing, increased competition has seen banks’ market share of the global banking and payments industry reduce from 96% in 2010 to 72% today. Fintechs, challengers, payments companies and big tech have entered the playground and started taking banks’ lunch money, demonstrating a level of innovation and agility that incumbent banks are struggling to keep up with.

And of course, there is Covid-19. We have seen years, if not decades, of change in a matter of months. The crisis has torpedoed traditional and reliable revenue streams such as cross-border payments to accelerate margin pressure, while driving a rapid shift to online banking channels and a massive uplift in digital volumes.

 

Simon Wilson

Breaking the shackles

In the context of increased competition and unprecedented digitalisation, the banking industry is waking up to the fact that payments are about adding value, not just processing. There is increasing recognition that capitalising on the potential of emerging payment rails, monetising the standardised datasets unlocked by ISO 20022 and launching new external services are huge opportunities to diversify and retain relevance. The introduction of overlay services such as Request to Pay or the European Payments Initiative are also poised to spur on the move to digital payments.

Decades of inaction on legacy infrastructure, however, is limiting options. Banks across the globe find themselves lumbered with expensive, inflexible and unreliable technology estates. The ability to respond to marketplace innovation, let alone lead it, is constrained by the need to devote massive amounts of cash, time and ever-dwindling internal resource to simply keep the lights on.

It is apparent that doing nothing is no longer an option, but transformation is a nebulous concept. There is no one single way to effectively transform. Different organisations have unique considerations based on their technology, capabilities, resource and culture, and there are various routes to take.

 

‘Don’t outsource your heart, your soul…and your spinal cord’

One option is to make payments someone else’s problem and outsource them. This can be an appealing proposition to get a seemingly perennial cost centre off the books, particularly in the current climate. But speaking at Sibos, J.P. Morgan CEO Jamie Dimon cautioned against the risk of inadvertently “outsourcing your heart, your soul and your spinal cord.”

For it is true that payments are the beating heart and soul of an organisation. Payments represent 80% of all interactions, providing critical customer touchpoints, data and service opportunities. As for the spinal cord, not much can happen when mission-critical payment systems go down.

The big problem, as Dimon notes, is that a lot of companies who have outsourced “have no idea what they are doing.”

Banks can find themselves stuck with equally costly, complex and cumbersome alternatives, falling even further behind the innovation curve and losing control in the process. “You end up paying too much money and then you’re beholden to costs that are going up.” But most importantly, “you’re not even doing a better job serving your client.”  Outsourcing a commodity execution service may well be the right strategic approach for some, but you need to ensure you have the other pieces of the payment process running smoothly and that you really are not leaving money on the table or  developing risk longer term by constraining future choice.

Still, the alternative is not necessarily better. Modernisation needs to happen now, so it is not surprising that enthusiasm for years-long, ruinously expensive and inherently risky in-house transformation projects has dimmed somewhat.

 

Best of both worlds

Yet it is wrong to say that the only choice is buy or build. There is a middle-ground. A collaborative approach to payments transformation that allows banks to move quickly to seize opportunities, while retaining control, significantly reducing costs and adding value.

This begins with banks understanding their starting point, defining a crystal-clear strategic vision for the role that payments play within the organisation and identifying market opportunities. Indeed, as McKinsey notes, “success for banks will depend on thoughtfully assessing capabilities [and] determining the role of payments in market strategies.”

Banks should then consider low-risk and lightweight options for upgrading legacy infrastructure to meet their strategic objectives, while minimising business impact. Payment platforms based on Cloud-native, open source technology promote flexibility, scalability and independence, rather than restrictive and expensive vendor dependencies.

Collaboration also plays a critical role. Finding the right fintech and service provider partners can allow banks to simplify complexity, reduce manual heavy-lifting and lower their cost base, driving efficiencies that enable resource to be focused on delivering for customers. As Dimon explains, “If I can’t build it better than you can, I’m better off just using yours.”

This combination of strategy, enabling technologies and true collaboration provides a foundation for innovation. It can help drive new revenues, further develop existing business lines and, by moving payments from cost to profit centre, help banks thrive rather than survive.

 

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