Is your bank future ready?

This article was published in the March 2014 edition of Australian Banking and Finance magazine.

While productivity and cost efficiency dominate conversations in board-rooms across the globe, banks need to have a view of how the industry will change over the next five years. In continuation of my last article published in November 2013, I focus on new models banks should experiment with to increase their market share, but this time through on customer experience lens.

HCL and AB&F conducted a survey of industry executives to determine the themes behind the key priorities. We found that providing differentiated customer experience is akin to innovation with IT underpinning it. However, delivering this is a challenge under current business models.

Consider three broad categories of customers – (1) who require help to do research and identify their needs, (2) Who have identified their needs, but are unaware of how to address it (product selection), (3) know exactly how to address their need and want their bank to make it faster and more convenient for them to satisfy? Most banks today address the smallest of the categories – the third, and are negligent in addressing the bigger market opportunities around categories (1) and (2). They engage lower in the customer experience value chain and are removed from customers' day-to-day lives. Their product development and bundling strategies thus tend to hinge on an average to poor understanding of customer behaviour. This makes them susceptible to the threat of new entrants from industries like retail, telecommunications and even technology firms (e.g. Google and Apple). These competitors have a greater ability to provide mass retail financial services due to a more intimate understanding of customer needs (at least addressing the category (2)). Which brings us to the question: how long will customer trust and security serve as good enough entry barriers to the banking industry?

WHAT'S NEXT?

Conventionally, banks have focused their attention on improving customer retention and experience through innovations in ‘their own’ channels - branches, internet and mobile. This myopic view of their sphere of influence will only drive incremental growth and customer satisfaction.

To address the bigger market of category (1) & (2) customers, banks need to adopt Xperiential Platforms - constructed around buying life cycles through collaboration with diverse industries across points of touch. These platforms will be built around delivering enhanced customer experience through strong customer insights providing customers what they want. To realise this, there are four options:  

Lifecycle Aggregators – 63%+ of executes we surveyed, rated investment in tools to gather strong customer insights and in merchants/brokers/service aggregators amongst their top 2 customer acquisition strategies. However, why should investment be restricted only to the sales end of their product lifecycle? Why do banks not extend this to behave as platform led aggregators of business functions across the customer lifecycle to gain proximity to customer’s daily lives? They will need to build different aggregator ecosystems for customer need chains like wealth and advisory, mortgages and transaction banking. This model is centred on prioritising process value chains and establishing the right partnerships in those value tiers.

At the peak of recession, USAA launched home circle as a one-stop shop to service the home buying life cycle. The platform allows potential customers to search for homes and real estate agents, create their personal profile, researching a neighbourhood’s demographics and listings, online community to share experiences, provide movers’ assistance and finally finance and insurance services. They have set this up through an end-to-end partner aggregator ecosystem giving them in-depth, individualized insights on each customer, improving their retention rates.

Should banks be in the business of addressing a need by helping customers through the journey of buying a house or maintaining status quo of simply financing the buy? Though provision of finance is their core business, ignoring the process up until the decision point of buying a house can prove detrimental for their market share.

Point of touch industry collaboration – Banks will need to collaborate with other industries on joint research, customer profiling and behavioural analytics to create new innovative and convenient products delivered by the host at the point of touch.

McDonalds’s has tied up with PayPal to enable customers place their orders using McDonald’s mobile app or online through PayPal Here mobile payment service. They can then pick up their order through a dedicated line set-up for this service. PayPal has signed up more than 15+ retailers including Home Depot and Office Depot, while Starbucks has a similar arrangement with Square using the Square Register. Banks need to play in the wider e-commerce value chain instead of only the payments value chain (their core competency).

Bigger successes will come from triangulation across multiple industries such as a Bank, Telco and Retailer coming together to create complex products.

Industry solutions through technology ventures – with technology players providing superior value through involvement in the wider expanse of the business process, not just their ‘current’ core business. U.S. Bank and mobile money solutions provider, Monitise, are co-developing an advanced digital commerce and experience solution for big retailers to help consumers interact with them and buy consumer brands through mobile. Key capabilities include product selection, instant checkout payments and leveraging digital and scanning technologies for product discovery. This solution covers a greater spectrum of retailers’ customer value chain by providing an end-to-end shopping experience. U.S. Bank is participating in non-financial activities helping consumers discover, learn, buy and share products they want – a much bigger value!

Consortium with competition within the industry – Much like the airline industry consortiums across countries (e.g. Star Alliance, One World), we will see greater functional collaboration between banks on specific business processes like payments to reduce high transaction costs and alleviate threat of new entrants. One example is cross border sharing of payment gateway / processing infrastructure for seamless, immediate and low cost execution. Customers can get preferential payments transfer, mortgage or savings bank rates between partner banks.

HOW CAN IT BE DONE?

Key to delivering this change is technology and a customer experience framework encompassing the following tenets:

·         Customer interaction journey maps to optimise decision-making on key business drivers. E.g. ClickFox analyses touch-point data across channels creating customer interaction journey maps.

·         Complex Event Processing (CEP) is essential. To illustrate, a customer walks into a branch to get a printed bank statement. As soon as he reaches the counter, his bank statement is ready along with a discounted 100 bps home loan pre-approval (not stated, but was looking for). How did that happen? The bank had an app for customers to add preferences and pre-refer branch visits purpose. In addition, the bank developed a CEP-based application that monitored significant deposits and correlated that to important life events such as having a baby. They matched it with rental payments, combining it with behaviour information gathered through listening posts to form the basis of the cross-sell recommendation.

·         Dis-intermediate core through distribution in/core out strategy. Since access to fresh CAPEX is rare, banks will have to use their existing investment slate utilising regulatory and other mandatory investments to dis-intermediate core and extricate pricing and product rules from core systems. 

·         Channel wide, device agnostic listening capability is required to cover customer correspondence, conversations in branches and phone, surveys and campaigns instead of just social media.

In essence, while the journey to an experimental consortium model is incremental, the underlying technology building blocks need to be in place from day one.

Are you ready for the journey? 

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Re-defining customer experience in banking

The most common conversation in board rooms around the globe today is how to improve productivity & operational efficiency and reduce cost. Banks, more than any other industry need to have a view of how the industry will evolve over the next 5 years.

The survey highlights that providing differentiated customer experience is synonymous to innovation with technology being the biggest driver – along expected lines. But enhancing elements of customer experience through usability, personalization and self-service without a fundamental business model change, will only help you succeed when your competition is within the industry.

Yes, most of the banks that survived the global financial crisis of 2007 have emerged stronger and more profitable. Customer experience has become much better by virtue of the banks transforming their online and mobile presence. However, various disruptive forces particularly in the form of new competition outside the industry are driving the banks away from the customer’s daily lives into just being mere providers of secure back-office transactors real. Let me explain.  

Consider three broad categories of customers –

(1) Who require help to do research and identify their needs,

(2) Who have identified their needs, but are unaware of how to address it (product selection),

(3) know exactly how to address their need and want their bank to make it faster and more convenient for them to satisfy?

Most banks today address the smallest of the categories – the third, and are negligent in addressing the bigger market opportunities around categories (1) and (2). They engage lower in the customer experience value chain and are removed from customers' day-to-day lives. Their product development and bundling strategies thus tend to hinge on an average to poor understanding of customer behaviour.

Look at what other industries are doing. Google recently acquired Nest home automation for $3.2 Bn. Why should a provider of smoke detectors and thermostats interest a technology giant? Because it gives them the ability to get into our home (the most personal of places) giving them valuable insights of how we live our lives. Even retailers like Starbucks are using their customer connect leverage to take away payment volumes from banks by getting customers pay through their loyalty cards.

While other industries are busy trying to get close to the customer, most of the innovation and focus within the financial services industry is focused around their online and mobile presence. This makes them susceptible to the threat of new entrants from industries like retail, telecommunications and even technology firms (e.g. Google and Apple). These competitors have a greater ability to provide mass retail financial services due to a more intimate understanding of customer needs (at least addressing the category (2)).

The only saviour for the financial services industry is that customers associate them with trust and security. But how long will they serve as good enough entry barriers?

Recent developments suggest this is short lived. Functions like Payments, deposits, transaction accounts and general insurance are very susceptible. Payments have seen competition emerge through technology platforms e.g. PayPal, Square and Stripe. Telcos in certain markets are now providing deposit, transaction and savings functions. Celcom Aircash customers in South East Asia who don’t have a bank account or want greater convenience can have a stored value account. They can create a mobile wallet, load money by walking into a shop and transfer to friends & pay bills. Celcom also provides viewing account balance and adding / withdrawing money from branches as added features. Customers can dial a number to register for the service and with an NFC sticker pay at point of sale.

HOW TO BANKS COMPETE WITH NON-INDUSTRY PLAYERS?

Conventionally, banks have focused their attention on improving customer retention and experience through innovations in ‘their own’ channels - branches, internet and mobile. This myopic view of their sphere of influence will only drive incremental growth and customer satisfaction.

To address the bigger market of category (1) & (2) customers, banks need to adopt Xperiential Platforms - constructed around buying life cycles through collaboration with diverse industries across points of touch. These platforms will be built around delivering enhanced customer experience through strong customer insights providing customers what they want.   

But How - One option is to become Lifecycle Aggregators. 63%+ of executes we surveyed, rated investment in tools to gather strong customer insights and in merchants/brokers/service aggregators amongst their top 2 customer acquisition strategies. However, why should investment be restricted only to the sales end of their product lifecycle? Why do banks not extend this to behave as platform led aggregators of business functions across the customer lifecycle to gain proximity to customer’s daily lives? They will need to build different aggregator ecosystems for customer need chains like wealth and advisory, mortgages and transaction banking. This model is centred on prioritising process value chains and establishing the right partnerships in those value tiers.

Some banks have made small movements. At the peak of recession, USAA launched home circle as a one-stop shop to service the home buying life cycle. The platform allows potential customers to search for homes and real estate agents, create their personal profile, researching a neighbourhood’s demographics and listings, online community to share experiences, provide movers’ assistance and finally finance and insurance services. They have set this up through an end-to-end partner aggregator ecosystem giving them in-depth, individualized insights on each customer, improving their retention rates. They have extended this to the Auto Circle – integrating the car purchase experience on a similar platform.  Customers can compare cars and reviews, save by buying cars from certified dealerships at a discount, repairs with vehicle protection with car financing and insurance.

In Spain, DB launched a lifestyle credit card designed for better work-life balance. Services provided in addition to credit are legal & tax advice, medical hotline, paediatric & child health advisors by telephone and assistance in finding private teachers at preferential rates. Most of these non-banking services are outsourced, but the bank benefits from enhanced customer experience, greater retention and deep customer insights by being part of the daily life.

So, should banks be in the business of addressing a need by helping customers through the journey of their buying life-cycle or maintain status quo of simply financing the buy? Though provision of finance is their core business, ignoring the process up until the decision point of say, buying a house, can prove detrimental for their market share.

While lifecycle aggregators are one option banks have of getting close to customers, it may still not be as effective a counter to the threat posed by non- industry playing in the e-commerce value chain.

Will cover that in my next post - register to be notified and stay tuned.  

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