TECHNOLOGY IN BANKING – REINFORCING CORPORATE DNA WITH TECHNOLOGY IN SEARCH FOR THE HOLY GRAIL

Bjorn Cumps, PhD
Post-Doctoral Research Associate at the Vlerick Business School in Belgium
Vlerick Centre for Financial Services

Dear Banks,
Are you afraid of Google Bank? Or Apple Bank? Or maybe PayPal Bank? Well, I am not. And neither should traditional retail banks. And yet these kinds of thoughts continue to dominate panel discussions, research reports and opinion articles worldwide. At a recent Banking event in Brussels, organised by the Centre for Financial Services of the Vlerick Business School and KPMG, the results were presented of a study on the future of the Belgian banking industry. One of the topics discussed was the importance of “digital” in the future business model. The study revealed that customer centricity would be one of the key KPIs for banks in the coming years. And for sure, digital is an important enabler, right? Well, the discussion is not that simple.

Bjorn Cumps

Bjorn Cumps

The use of technology is on the rise in banks. New, technology-infused branch formats, social media presence, mobile banking, location-based banking services, Big Data technology, … these are just a few of the projects banks are all franticly working on at this moment. So we should be more specific when we talk about “technology” or “ICT” in financial services as each of the above mentioned examples is a “metier” on its own. But they do have something in common: none of these technologies will solve the banks’ problems. None of these are the silver bullets a lot of bankers are looking for. Banks are now in a phase where they are familiarizing themselves with these technologies. Which is good. But more is needed. More is needed to face the problem of flat net interest income for the coming years. More is needed to increase fee and commission income. More is needed to conquer the holy grail of customer intimacy and customer trust banks are all fighting for. Bankers need to step beyond the phase of familiarization or playing around and experimenting with these technologies. They need to tailor the technology to their core values or corporate DNA.

Today almost every bank has a Facebook or Twitter account. Great! Well, … no. Not that great as most of them use this either as an alternative for e-mail or postal services to keep us up-to-date on corporate news most clients are not interested in. Or they use it as an alternative call centre, mostly resolving minor issues to engage with the customer, which is already a next level of maturity, but still. In general, most social media engagement in banking is to be situated at the corporate brand level. Strange as a lot of study has already revealed that local brands enjoy more trust than corporate brands. A recent study in Belgium on trust discovered that customers trust their own banker twice as much as they trust banks in general. So local presence, proximity and a personal connection are key to that holy grail of trust and customer intimacy. To give one example, a proximity-focussed Belgian bank called Fintro by BNP Paribas Fortis has understood this well and pulled the level of engagement down to the local level by giving each local branch their own Facebook page to engage with their own customers. This makes it personal as the branch staff are the ones engaging with their known customers. Nothing special but already more than many other banks do. Social and local could go hand-in-hand on the path towards customer centricity. And this is just one example.

The lesson here, for every use of technology in banking, is to tailor the technology to your banks’ values, culture and strategy. There can be no winners if banks all keep using technology in a similar and standard way. At best this can lead to a better or different customer experience, which is much easier to obtain than true customer intimacy. When we talk about customer intimacy in banking we mean real engagement, personalized service, deep knowledge and understanding of their needs. Something where traditionally the personal touch of the branch employees makes the difference. Banking is a people business, right? Because in people we trust. People we know. But technology? The winners of tomorrow, the finders of the Holy Grail will be those banks that are able to blend and reinforce and boost their employees’ capabilities with technology. Not by giving 1000 branch employees all an iPad instead of a regular PC. All banks can copy this. Not by having a corporate Facebook account to interact in an impersonal way with frustrated customers.
All banks can copy this. Not by buying the latest Big Data software system to look for the hidden gold in your data. All banks can copy this. But by looking at your banks DNA, core values and capabilities you have built over all these years and reinforcing them with technology. If f.e. operational excellence and low-cost, no frills service is your game you could reinforce this with fast and straight through customer journeys on mobile devices. If you go the extra mile for your customers with a warm, personal touch then one possibility is to make sure you use their data to gain deep insights into their wants and needs on how to better serve them. A certain bank for example predicts when clients will need an overdraft giving their spending pattern and proactively offer it. If all you are interested in is selling products and do not care about your customer’s reaction, you could go ahead and sell their pooled spending habits data obtained from their accounts to third parties like a UK bank just started to do. It will certainly generate extra fee income from third parties but then do not expect your customers to like this. These are just a few examples to illustrate that banks are well on their way of incorporating technology in their business operations, yet not always aligned to their corporate DNA.

So, Banks. Are you afraid of Google Bank? Or Apple Bank? Or maybe PayPal Bank? Well, you shouldn’t be. Banks are embracing technology much faster than these technology companies are embracing banking activities. But banks have to do it in a tailored, blended way. Do you really think Google, Apple or PayPal want to become banks? Evaluating mortgage applications? Financing infrastructure projects? Doing IPOs? Managing a portfolio of funds? Managing clearing, settlement and custody activities? Yes, they have one big advantage: they have strong, trusted brands and are in the customers’ heart. And that is certainly an advantage with regards to customer intimacy. But tech companies do not have the banking expertise. Banks have a wealth of know-how, expertise and capabilities almost impossible to copy. And they should leverage and further strengthen these with new technology. Will tech companies become true banks? I do not think so. Will they cherry-pick on certain banking services such as payments? Most definitely! So that is the real battle-ground. But I for one welcome this move. Nothing better than good competition to keep the banks awake, on their feet, eyes on their customers and ready to innovate!

Bjorn Cumps, PhD
Post-Doctoral Research Associate at the Vlerick Business School in Belgium
Vlerick Centre for Financial Services

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