By Amit Dua, President & Global Head of Client Facing Group, SunTec Group
Solution: Creating the Enterprise of Tomorrow through Hyper-personalization, Legacy Transformation, Open Banking
Harry Gordon Selfridge, who founded Selfridge’s department store in London more than a century ago, is given credit for the saying “the customer is always right.” He instilled the mantra in his employees and built a hugely successful business by personalizing the retail buying experience of his customers.
Today, the term “customer service” is regarded by many consumers as an oxymoron. Customers still want and expect a personalized experience. Yet, everyone has a story of a bad experience trying to correct an error on a bank statement or question a suspicious transaction on a credit card (some even do a rudimentary cost-benefit analysis of the time they expect to waste in calling the customer service department: is it worth an hour on hold to fix a $5 error?)
Bad experiences lead to diminishing customer loyalty to brands. Add to this, the entry of BigTechs like Amazon, Apple, Google,etc (who in fact are known for their customer-centricity) foraying into the banking industry along with the many agile& nimble FinTechs that can disrupt the last mile payments and other functions, the current banking market scenario is quite interesting. According to Business Insider, 73 percent of US consumers are open to considering a new brand in at least one shopping category – “This doesn’t mean that consumers are constantly looking to abandon the brands they’re loyal to, but it does suggest brands are always at risk of losing customers.” Many businesses have resorted to loyalty programs offering rebates, prizes, etc. in often-desperate attempts to keep their customers from defecting.
In the retail banking sector, traditional banks have spent billions of dollars over the past decade on online banking, mobile deposits, bill payment platforms, instant money transfer systems and more. At the same time, businesses like Transferwise, PayPal, Venmo and others are chipping away at traditional banking. As a result, digital transformation for many banks has become more reactive as high-tech, non-bank competitors emerge.
The fundamental problem: traditional banks are siloed
The challenges facing banks today are much deeper than finding the right technology to enable digital transformation. Traditional banks must focus on the synergy between their often-siloed, front-end channels, such as mobile, app or web and their often-forgotten middle and back-end systems. This is easier sketched on a whiteboard than achieved to the satisfaction of today’s bank customers.
The middle and back-office transaction processing systems are critical to banks, serving as the backbone of the entire organization. They have been built over many years with a combination of systems and applications. These middle and back-office layers are where the banks’ business logic, financial products, core processes, metadata and many other business-related assets are stored in its core systems. It is within these layers that banks run their auditing, monitoring for risk and compliance, as well as their business decision algorithms. Given the critical nature of the day-to-day operations of a bank, the growing complexity and size of these layers make transformational change an extremely risky endeavour. Customer experiences with banks are separated, often hard to streamline.
Meanwhile, bank customers want customized products to follow their journeys and meet their specific needs. For example, a bank’s customer wants a holistic a home-buying experience versus shopping for a mortgage, hiring a lawyer, setting up utility services and/or finding contractors for needed improvements. Cookie cutter products will no longer cut it. Banks need to move up their customers’ perceived value chains or they risk their customers moving elsewhere.
The solution: Banks must modernize and hyperpersonalize
The solution does not need to be infinitely complex. Deploying a digital core middle layer allows orchestration across the silos within the bank. This eliminates any disconnect to the back-office layer, without a fundamental overhaul of the entire system. This headache-free transformation provides the agility required for modern banking by progressively transitioning the business logic out from the complex legacy core to the middle digital core layer. It also has the advantage of letting banks run digital transformation at the pace that best suits their customers.
A big opportunity for banks to achieve profitable digital transformation is through the concept of “Open Banking.” Banks have often viewed new government regulation with a deep skepticism. Now, however, perhaps the most technologically significant regulation is emerging in open banking regulations like PSD2 for Europe, similar regulations in the UK and Hong Kong, and upcoming ones in Australia and Singapore. These new regulations look to fundamentally disrupt banking by requiring banks to open their customer data and payments infrastructure to third parties. Traditional banks’ most valuable asset, customer data, is now available for all to see. Where once this was proprietary bank information, now the customers and competitors can assess its value too.
Open banking challenges traditional banks to “hyperpersonalize” the customer experience. Banks can now offer products and services from external ecosystem partners who complement existing offerings, thereby enhancing the holistic experience for the customer. For traditional banks, open banking is a blessing and a curse. What it takes with one hand, it gives back with the other – but only for banks willing to innovate to retain the customers they know and have a larger wallet share of those customers’ transactions.
In today’s banking environment, a lack of agility is the recipe for dissatisfaction and bank customer churn. There is a better way. To build the bank of tomorrow, banks need to start by being digital native and the safest way to be do that is by moving all the business logic and product variation design into the middle layer. This frees up the core back-end product processor systems from the weight of storing multiple products and allows the front-end to be adaptable. It actually enables banks to hyperpersonalize the customer experience and move along with technology updates without actually being disrupted.
Customers are not difficult to please if a trusted brand offers them a relevant and well-packaged range of core offerings. Offering anything less allows more innovative competitors to steal the day. This is the new frontline of banking.
WHY THE TIME IS NOW TO BANK BEYOND BORDERS
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 .
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.
IT’S TIME FOR BANKS TO SIT THEIR CUSTOMERS DOWN AND TALK OPEN BANKING
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.
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.
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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