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?
