By aping technology firms, banks that simplify solutions and focus upon the customer experience will be the ones that survive.
Technology lets banks make banking simpler for consumers and, by following the lead set by top technology companies and agile start-ups, banks are learning how to tap into customer behavior and design more appealing online experiences.
Banks are embracing the practices of the tech firms that know how to solve complex problems instead of creating them. Herber De Ruijter, head of digital strategy at Intellect Global Transaction Banking (iGTB), says “simplexity”—making highly complex systems usable with simple interfaces—is a key trend as banks and corporations embrace digital disruption to serve retail customers.
“As a consumer you won’t even notice a lot of these innovations,” he explains. “However, a couple of great ones are changing the way we do business with our banks: [services providing] easy-to-understand and actionable advice on retirement; crowdfunding and lending fintechs, such as Kabbage, allowing instant access to capital; mobile payment wallets, as a first step to an almost cashless world; and Uber—where you just don’t pay at all [payment happens seamlessly in the background].”
It’s not just better products or rates that make such companies popular: They make business transactions smooth and easy. “What all these disrupters have in common is that they leverage technology, machine learning and artificial intelligence to create frictionless origination and a self-service experience,” continues De Ruijter. “Technology combined with very refined user experiences is the answer when it comes to simplicity, which drives adoption.”
Banks are still in the diagnostic phase as they try to understand the way big tech companies operate so that, over time, they can mirror them. “The biggest threats don’t come from the biggest banks but from the biggest tech companies,” continues Ruijter. “They have the best cards. Banks either will [transform] or already are transforming themselves into tech companies. Look at Goldman Sachs, which actively contributes to open-source projects, shares its assets based on current technologies—like Web component libraries—with the world, and currently employs 10,000 engineers spread out over 44 offices in 15 countries.”
New business models include aggregator bank initiatives, such as Starling, Simple and Atom, which develop financial products by bundling the banking services of others. “These initiatives today compete on superior user experience and premium customer service—which people love,” states De Ruijter.
Another option for banks is to partner to co-create, co-design or buy innovations. “At iGTB, we do quite a lot of projects where customers outsource parts of their digital innovation to us, intending to let that innovation come back into the bank. You see a lot of interest in our lean engineering and user-centric design principles, and their success encourages banks to familiarize themselves with such approaches.”
Although this is clearly great for those who are late in the game or have time-to-market problems, De Ruijter believes many smaller banks will survive only by bundling white-label solutions designed by others and combining these with premium products they carry themselves.
BIG DATA, BIG REWARDS
Jeremy Taylor, strategy owner for capital markets at GFT, a financial technology consultant, sees opportunities for both challenger banks and smaller banks. “If you are a Tier 2 regional bank, you’ve got an opportunity to leapfrog some of the big boys, because top-tier banks are encumbered with balance sheets that are stodgy and they’ve got capital costs now with Basel III, so they are all trying to figure out complex tech and data issues—and many are divesting themselves of products, clients and countries because of the high cost of regulations and capital.”
In July, GFT’s International Survey of Experts on Digital Banking revealed that banks were unhappy with skills shortfalls when dealing with data. Reliable data offers substantial upside potential, by helping banks personalize marketing, analyzing patterns with increasing detail and sophistication. Taylor advises banks to have a roadmap to manage resources sensibly rather than in spikes, as banks are constantly going in and out of the contract market. “The problem has been 30 years in the making,” he says. “It’s part of a wider strategy of simplification that they need to develop. In the last two to five years there has been a wake-up call that this is actually a brake on their businesses and could cause them data compliance problems because half of the data compliance requirements are shoved down the priority list.”
THIRD-PARTY OPPORTUNITIES
Bundled products developed by banks and combined with those of third parties, distributed through digital channels and attached to their brand, is, according to De Ruijter, still a strong proposition: “Those products will constantly be refined through analytics, testing and other similar developments mirroring those we have seen in retail.” He adds, “The technologies have already existed for many years; the challenge for banks now is ascertaining how to extract useful information from the tons of data they hold.”
De Ruijter says banks at the forefront will personalize these products, tailoring them to segments they are targeting, or will develop products specifically for underserved markets, such as small and medium-size enterprises. “The application programming interface (API) economy will drive more mass-customized offerings that align with the needs of various customer segments, particularly those that are currently underserved,” he says. “Out of the strategic leveraging of data will come more-advanced products—for example, ones that are in-context [interaction customers have with the bank], or consumption-based, or dynamically priced.”
Singapore’s Oversea-Chinese Banking Corporation (OCBC Bank), for example, recently opened up its API’s to third-party developers to create a “data social network” that facilitates free flow of certain non-customer data in a secure manner for the benefit of third parties and the community as a whole.
In Europe, the Payment Services Directive 2 (PSD2) will allow a more level playing field for third-party payment processors. Some banks have been running scared at the thought of further disintermediation, but many see it, Taylor says, as an opportunity to work with Internet companies to develop apps and e-service bundles that give them an edge.
Some fintechs focused on payments are helping banks build bridges between social media and traditional banking payment networks. “The crossover between banking payment networks and social media networks is a huge opportunity,” explains Taylor. “We all use social media, and it just makes sense to combine that with paying bills, sending money to relatives for birthday presents, etc.” Websites offer buttons for various easy, one-click payments methods—Paypal, credit card. “If you are a bank, you want your bank’s button to be on all these online retail outlets,” Taylor adds. “Although PSD2 opens up banks’ networks to new entrants, if they do it right, they can have their button on every single website.”
CREATING NEW MARKETS
Repackaging and creating new experiences on smartphones gives banks international opportunities to find new customers. In Africa and Asia, technology is enabling banks to acquire and serve consumers in markets formerly unassailable.
Chris de Bruin, global head of retail products and digital at Standard Chartered, says the digital agenda is a response to growing demand for convenience and choice. “People are looking to conduct more activities digitally, where they do not have to spend time traveling to a branch and queueing for services,” he says. “We offer secure banking services through digital channels so our customers can do their banking anytime and anywhere they like, and this helps us reach more clients, regardless of where they are.”
Standard Chartered has rolled out a new mobile and online banking platform in eight African countries—Botswana, Ghana, Kenya, Nigeria, Tanzania, Uganda, Zambia and Zimbabwe—reaching one million retail clients, according to De Bruin. Using a smartphone, tablet or laptop, clients can check balances, transfer money and pay bills securely. “Their mobile device is, in effect, a bank at their fingertips,” he says.
Another example is Retail Workbench, which Standard Chartered rolled out in nine countries—Korea, Singapore, India, Malaysia, Bangladesh, the UAE, Kenya, Nigeria and Pakistan. “The digital ‘bank in an iPad’ sales-and-service tool is seamlessly integrated with the bank’s back-end infrastructure, so our staff can meet clients in a location of their choice, be it their office or favorite coffee house,” De Bruin explains. “Our staff can then help them open an account, or approve loans or issue credit cards, making banking services fast, simple and completely paperless.”
Standard Chartered’s network across more than 30 markets in Asia, Africa and the Middle East provides the bank rich veins of feedback from various markets. “As a result, we build once for many,” says De Bruin, “focusing on building capability in the most global and standardized way as possible—so it is very portable, yet allows for localization.”
Although valuable innovations come from both developing and developed markets, the regulatory environments in India and China, De Bruin says, have enabled multiple innovative digital-banking solutions that could potentially be exported to other markets.
“Highly digital Korea has been a test bed for innovation, such as the Retail Workbench,” De Bruin says. “We introduced the new technology there in 2014, and we will roll it out in 18 markets by end of 2017. Touch-login biometric technology—which we first introduced in Singapore this year—will be rolled out to nearly 5.5 million clients in 16 markets across Asia, Africa and the Middle East by end of the year.”
This ability to behave like agile technology firms has meant banks are adopting an Amazon-like mind-set to drive up-sell and cross-sell options. “Instead of being ‘places where people go to bank,’ banks will evolve into ‘brands that clients prefer to use for financial transactions,’” states De Bruin.
“Even given various privacy restrictions, banks have access to a profusion of real-time and quite actionable data, which will allow them to give their customers a ‘Best Next Action’ or ‘Best Next Offer’ (tailored to their needs and preferences). The more complex the type of financial product, the higher my expectation is that my bank is my trusted adviser, and the higher the adoption rate,” concludes De Ruijter. “Customers’ trust in banks is still very strong.”
