Banking

THE FUTURE OF THE BRANCH: HOW CORONAVIRUS HAS LED BANKS TO REASSESS THE VALUE AND PURPOSE OF LOCAL BANKING SERVICES

By Brian Holden, Director, Financial Services at SAS

For years, we’ve heard that branch banking is on the way out. Banks have been focused on the idea that younger generations want to do everything online, and digital transformation initiatives have centred around creating seamless user experiences on web and mobile and a truly networked society.

At the same time, visiting the local branch has been synonymous with manual processes, paperwork, inconvenience and inefficiency. And that’s not just the perception of customers—it’s what the industry thinks too. Over the past few decades, if you were looking to build a top career in banking, you would look to the skyscrapers of Canary Wharf, not the branch on your high street.

Bringing the human touch back to banking

But how quickly things change! Over the past few months, COVID-19 has confronted many people with a prospect of financial distress that they could never have imagined at the start of this year. And despite all the investment in call centres, online banking websites and mobile apps, the digital infrastructure that banks have built over the past decade hasn’t been the panacea that everyone expected.

Banks are realising that customers don’t want to do everything online after all. When their livelihoods and businesses are threatened, they don’t want to wait on hold with the call centre—they go to their local branch because they know they’ll get an answer. And when they’re really worried about money, they want personal advice and face-to-face support from a real human, not just a set of recommendations on a website.

As a result, the crisis has shown the branch in a completely different light: it’s not on the periphery, but at the heart of the banking community.

That’s not to say that digital banking has failed, or that digital investments have been wasted—it’s just that the crisis has highlighted something that should have been obvious all along. Banking isn’t just about processing financial transactions; it’s about helping people live the lives they want to live. It’s about making banking simple, safe and rewarding. Nothing is more personal or more emotive than a small business owner’s dreams or a family’s financial security.

We live in a network society, that’s true—but the network is fundamentally built on human relationships, not technology. Bank branches are critical nodes in that network. You can’t extract those nodes and expect everything to function in the same way. So instead of trying to invent some new means of personal banking interaction online, why not use the ecosystems and talent we already have, and give the branch its due as a trusted focal point for the local community?

From central to local

At the same time, those city skyscrapers no longer seem to be gleaming quite so brightly. Although security and regulatory compliance considerations have historically made many banks resistant to the idea of allowing employees to work from home, the pandemic is forcing them to push those boundaries.

With the ongoing risk of contagion, people are no longer willing to spend several hours a day packed like sardines into a tube carriage just to get to the office—and this is a situation that may continue indefinitely.

Under these circumstances, the branch begins to look like an attractive option not only for traditional branch-based functions, but as a decentralised workplace. By providing a secure location where employees can access bank systems, it eliminates the compliance concerns of working from home, while ensuring that staff aren’t obliged to commute into central offices unless they really need to. Moreover, with the cost of a desk in Canary Wharf estimated at around £100,000 per year, there could be significant cost savings from moving to a more branch-based model.

This isn’t just blue-sky thinking—it’s something that major banks are already actively exploring. Jes Staley, Group Chief Executive of Barclays, has gone on the record about rethinking the balance between central and local, potentially enabling investment banking and call centre teams to work from retail branches. With around 70,000 Barclays staff currently working from home due to lockdown, he told the BBC: “There will be a long-term adjustment to our location strategy. The notion of putting 7,000 people in a building may be a thing of the past.”

Finding the right level of automation

However, if we do see a shift towards more of a hub-and-spoke model, with more responsibility shifting from central office to the branch network, branches can’t stay locked in the past. The in-branch experience needs to be just as simple, fast and seamless as the web or mobile experience should be. Customers won’t tolerate queues, paperwork and manual processes, and they’ll expect consistent service regardless of how they choose to interact with their bank.

Offering the right advice and support to each customer across all channels is a challenge that can only be solved with the right combination of people, processes and technology. Essentially, you need to find a way to make the right information available to make the right decisions at the right time and embed those decision support mechanisms into all your customer-facing business processes.

The value of intelligent decisioning

At SAS, we call this “intelligent decisioning”—empowering humans with real-time insight through artificial intelligence and data-driven decision support. By adopting an intelligent decisioning fabric, banks can either automate decisions completely or provide recommendations that customer-facing staff can act upon instantly. This intelligent level of automation puts human expertise back at the heart of banking: it clears away the routine decision-making and frees up time for advisors to focus on the more complex cases, where their expertise is really needed.

An intelligent decisioning fabric is vital for any bank that aims to provide customers with truly personalised service either in-branch or via the call centre during the current crisis, when many customers find themselves in unprecedented need of their bank’s support.

Banking

SEIZING THE OPEN BANKING OPPORTUNITY

Nick Maynard is a Lead Analyst at Juniper Research

Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:

Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.

Nick Maynard

The Disruption Factor

Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.

AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.

PSD2 Changes

Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.

As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.

Open Banking Opportunities & Challenges to Consider

Source: Juniper Research

Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.

The Forecast for Open Banking

The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.

Open Banking – Delivering Opportunities and Threats

It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.

Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.

Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million

Source: Juniper Research

Banking

2021: THE NEW-NORMAL LIFECYCLE FOR BANKING

Laura Crozier, Global Director of Industry Solutions, Financial Services at Software AG

It would be impossible to talk about predictions for the banking industry in 2021 without mentioning the cataclysmic impact that 2020 and the pandemic has had on people, businesses and countries.

Unlike with the global financial crisis, banks have been able to step up as “good guys” this time around, rebuilding their reputations as well as accelerating digital transformation. One of the main outcomes is increasingly smart, efficient online payments.

In 2020, the banking industry innovated like never before. This is the new normal. Overall, customers and society will be the beneficiaries from the changing industry. Here are my predictions:

Reputations are reborn

Banks across the globe pulled out the stops to integrate and adapt systems and processes to help customers during the pandemic. They offered accommodations in loans, assisted governments with the distribution of financial relief, and supported consumers by upping contactless spending limits and virtual deposits.

In 2021, banks will risk losing that rosy glow as economic circumstances drive them to deal with non-performing loans, mortgage foreclosures, layoffs etc. But, beyond their role in society as providers of capital and liquidity, banks will invest to sustain their reputations as trusted and good corporate citizens and use their power to persuade their customers and providers to adopt higher environmental and ethical standards. This will be in the areas of bank carbon-neutrality, sustainable financing, serving the unbanked, diversity and gender equality (as the number of women running a major global bank will double from one (Jane Fraser at Citi) to two). It’s a start.

Coming of age in the way of working

Back in Q1, when bank employees cranked up their laptops on their dining room tables, banks that were strategically undertaking business transformation accelerated their efforts. Those that were tactical, or on the fence, now understand with painful clarity that this work must be undertaken strategically.

Cracks in process and the way of working and their resulting risks can be crippling. Especially from a back-office perspective, it is not enough to rely on “organisational memory” and collegial proximity for work to get done right. Advanced banks pushed the boundaries of remote work, and the proof of concept was successful. So, they’re doubling down on developing digital twins and moving to the cloud. They’re adopting the hybrid office/WFH approach to reduce health risks and reduce cost permanently. The watercooler will never be the same.

The death of cash

Ok, maybe the rumours of the death of cash are a bit exaggerated since there will always be the need for cash (and, to some extent checks; the USA, for example, cannot seem to live without them). But the pandemic has permanently changed the way that consumers and small businesses bank, and the demotion of cash has been accelerated by a decade by the pandemic. For example, the Norwegian central bank said that cash payments in that country have plummeted to just 4% of transactions since March.

Implications? It will be critical to continue evolving payments to be smart, safe and flexible to compete in new world, in both retail and commercial banking. Also, the permanent change in the mix of channels will see banks’ face-to-face engagement with customers fade. Branches aren’t going to go away entirely, but they will be reserved for high value activities – by appointment only. To compensate, the personal touch has to be delivered digitally and intelligently.

The role of the bank as a “financial wellness partner” is being born. Banks will use customers’ data, not just to personalise and differentiate banking experiences, but to make recommendations for products and services beyond traditional banking from across their ecosystem to serve their customers well. Just as customers own their cash (physical or digital), in the future they will demand that they own their data (and can share it with whom they choose). Then retail and commercial clients will share their data in return for value.