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8 SIMPLE WAYS TO REINVENT BANKING FOR THE FUTURE

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8 SIMPLE WAYS TO REINVENT BANKING FOR THE FUTURE 1

It’s a sign of intelligence to embrace change rather than ignore it, especially when it’s clear that there is no other way forward.

By MaiteBarón, CEO, The Corporate Escape

Whatever critics may wish, banking is here to stay … at least for the foreseeable future. But that doesn’t mean the sector isn’t long overdue a makeover.

Events in recent years have rightly led to the widespread belief that banking has lost its way. The issues that continue to arise, such as Libor fixing, rate swap scandals and ongoing mis-selling, have done little to blow away the dark cloud and large question mark that hang over the industry.

But, if banking is to reinvent itself, at some point it must wholeheartedly grasp the challenge of turning from ogre into dependable guardian of financial well being, not least by looking at the way it interacts with and provides services to its customers.

So what needs to be done to make the transition? Here’s some food for thought.

  1. Build a culture of trust and transparency

This is essential if banking is to regain its once well-regarded position in society, something that’s eroded away over the years. In part, this is the due to the ‘silo’ structure within large organisations where groups working in isolation from other elements of the business are shielded from ‘outside’ influences, and therefore lose awareness of consequences of their actions on others.

  1. Welcome different ways of thinking

Working in a bubble, with like-minded people, there is little to disturb or question the prevailing culture. In such a closed environment, even if not intentionally, secrecy and introspection are the inevitable consequence.

  1. Make customers feel part of the conversation

At a retail level, the public could help play a part in helping to create greater transparency by becoming more finance-savvy themselves, something that banks should actively encourage … and not just as a cosmetic exercise.

  1. Make money education accessible and fun
Maite Baron

Maite Baron

Better financial education would enable more people to feel comfortable discussing money matters, to the point where it became as natural as talking about the weather … or almost.

Unfortunately, as long as there remains a sense of mystery around money, people will continue to distance themselves from it and so put a barrier between themselves and financial institutions, feeding the disconnection between banks and their customers.

From a young age, we need to become more financially literate so we can have a better understanding of the profound effect the money decisions we make can have on us and our families. Banks can play their part in making that happen by helping to create a new generation of financially savvy individuals.

  1. Develop employees who aren’t focused solely on process or profit

Of course, for many banking customers, there is a sense that this disconnection is virtually institutionalised, not just by procedure but also by the attitudes of banking employees. Clearly, the development of greater emotional intelligence within the banking community would help in providing a more empathetic response when talking with customers, particularly those in difficult financial situations.

  1. Make creativity and innovation part of your cultural DNA

So, while the sector has come a long way from the days when it offered a limited range of vanilla products, with little distinctiveness between banks, there is still a need for more creativity and innovation. This is particularly so in our fast-changing digital world,where people of all ages search for and expect new ways of doing things that are more in keeping with their lifestyles.

For banks, that ought to mean developing innovative money solutions, nuanced to the needs of different groups, especially when it comes to provision of out of branch services.

Apart from their duty to customers and shareholders, being in control of the nation’s purse strings puts banks in a privileged position that is distinct from any other type of business. As such, they should be regarded, and should regard themselves, as having an obligation to society at large.

That means starting to look and think beyond pure profit, and some financial institutions are taking a few tentative steps towards this. Events since 2008 have shown what happens when banks focus solely on the bottom line. If there is any sense of déjà vu in that respect, we all know that politicians of every denomination are ready and waiting to hold banks to account.So better to make the first move, than to be beaten to it by those with axes to grind and careers to promote.

  1. Develop a values-driven organisation that works for the greater good

Banks must start to think about the extra value they can bring to a community, above and beyond merely servicing someone’s account. This requires an ethical shift to a more values-driven way of thinking – something that’s already happening in the wider business community. By taking on a more inspirational role, banks could be a driving force for both economic growth and social change through the encouragement of enterprise. In so doing they could yet turn themselves from ‘bad guys’ into good.

  1. Bring soul and heart back into banking

Going forward, banks simply need to be more human. We all know that processes will almost certainly become increasingly automated. However, that doesn’t mean that banks should hide behind the machine, or the human touch will be lost, further widening the divide between banks and their customers. People need to be around when important decisions have to be made. Some boutique banks are already devolving decision making to local level, which, in an increasingly sterile digital age, brings a sense of value and care back to the banking experience.

  1. Think partnership and collaboration

Naturally, there are financial considerations in retaining the ‘human factor’. It is after all the need to save on costs that has increasingly driven people out of banking. To counterbalance that effect, perhaps banks should start to think more collaboratively, about working in partnership with one another. A collective approach may be just what’s needed, with banks sharing the provision of customer services, cutting costs to customers and offering them the support they need in a way that’s less possible when banks take an individual and competitive stance.

Every business sector periodically undergoes periods of change that can be either be resisted or see as an opportunity to be embraced. If banking is at such a transition point then reinvention may be the best cure.

At The Corporate Escape, developing entrepreneurial leaders to succeed in a future world of work is our passion. It’s time to take control of your career by shifting your mindset.

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19 2

Organizations in the Middle East have had to take immediate actions in reaction to the COVID-19 pandemic, such as shifting to remote and virtual work, implementing new ways of working and redirecting the workforce on critical activities. According to Deloitte’s 10th annual 2020 Middle East Human Capital Trends report, “The social enterprise at work: Paradox as a path forward,” organizations now need to think about how to sustain these actions by embedding them into their organizational culture.

“COVID-19 has created a clarifying moment for work and the workforce. Organizations that expand their focus on worker well-being, from programs adjacent to work to designing well-being into the work itself, will help their workers not only feel their best but perform at their best. Doing so will strengthen the tie between well-being and organizational outcomes, drive meaningful work, and foster a greater sense of belonging overall,” said Ghassan Turqieh, Consulting Partner, Human Capital, Deloitte Middle East.

According to the Deloitte report, many organizations in the Middle East made quick arrangements to engage with employees in the wake of the pandemic through frequent communications, multiple webinars where senior leaders addressed employee concerns, virtual employee events, manager check-ins, periodic calls and other targeted interactions with the workforce.

The report also discussed how UAE and KSA governments have reexamined work policies and practices, amended regulations and introduced COVID-19 initiatives to support companies and the workforce in the public and private sectors. Flexible and remote working, team-building and engagement activities, well-ness programs, recognition awards and modern workspaces are among the many things that are now adding to the employee experience.

Key findings from the Deloitte global report include:

  • Only 17% of respondents are making significant investments in reskilling to support their AI strategy with only 12% using AI primarily to replace workers;
  • 27% of respondents have clear policies and practices to manage the ethical challenges resulting from the future of work despite 85% of respondents saying the future of work raises ethical challenges;
  • Three-quarters of leaders are expecting to source new skills and capabilities through reskilling, but only 45% are rewarding workers for the development of new skills; and
  • Only 45% of respondents are prepared or very prepared to take advantage of the alternative workforce to access key capabilities despite gig workers being likely to comprise 43% of the U.S. workforce this year according to the Bureau of Labor Statistics.

“Worker well-being is a top priority today, and similarly to the rest of the world, companies in the Middle East are focusing their efforts to redesign work around well-being by understanding workforce well-being needs,” said Rania Abu Shukur, Director, Human Capital, Consulting, Deloitte Middle East.

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One in five insurance customers saw an improvement in customer service over lockdown, research shows

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One in five insurance customers saw an improvement in customer service over lockdown, research shows 3

SAS research reveals that insurers improved their customer experience during lockdown

One in five insurance customers noted an improvement in their customer experience over lockdown, according to research conducted by SAS, the leader in analytics. This far outweighed the 11% of customers who felt it had deteriorated over the same period.

This is positive news for insurers during such challenging times, with 59% of customers also saying that they would pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.

The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of insurance customers using a digital service or app has grown by 10%. Three-fifths (60%) of new users plan to continue using these digital services moving forward.

However, while the number of digital users grew over lockdown, half of the insurance customer base has not yet chosen to move to digital insurance apps or services.

Paul Ridge, Head of Insurance at SAS UK & Ireland, said:

“It’s impressive that there was a net improvement in customer experience during lockdown, despite the challenges the industry was facing with a transition to remote working and increased claims for things like cancelled holidays. While many were forced to wait on customer help lines for long periods, part of the improvement may be explained by even a small (10%) increase in the number of digital users.

“However, it’s clear that a huge number of customers are still yet to make the move online. It’s vital that insurers provide the most accurate, timely and relevant offerings to customers, and this is best achieved by having additional insight into online customer journeys so they can understand them better. Using analytics and AI, insurers can seize this opportunity to digitalise their customer experience and offer a more personalised approach.”

Meanwhile, for insurers that fail to offer a consistently satisfactory customer experience, the price could be severe. A third (33%) of customers claimed that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service.

For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer? 

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The power of superstar firms amid the pandemic: should regulators intervene?

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The power of superstar firms amid the pandemic: should regulators intervene? 4

By Professor Anton Korinek, Darden School of Business and Research Associate at the Oxford Future of Humanity Institute. Gosia Glinska, associate director of research impact, Batten Institute for Entrepreneurship and Innovation, Darden School of Business

Recent news that Apple hit a market cap of USD2 trillion highlights an extraordinary success story: A once struggling computer-maker on the verge of bankruptcy innovates its way to becoming the most valuable publicly traded company in the United States.

Apple’s 13-figure valuation is indicative of a larger trend that is not entirely benign — the rise of a handful of superstar firms that dominate the economy. Over the past three decades, advances in information technology, mainly the Internet, have supercharged the superstar phenomenon, allowing a small number of entrepreneurs and firms to serve a large market and reap outsize rewards. And COVID-19 has greatly accelerated the phenomenon by pushing us all into a more virtual world.

Apple — along with Amazon, Facebook, Google, Microsoft and Netflix — is a case in point. The combined market value of those six companies exceeds USD7 trillion, which accounts for more than a quarter of the entire S&P 500 index. Even amid the pandemic’s economic wreckage, these megacompanies continue to prosper. The combined share price for Apple and its five peers was up more than 43 percent this year, while the rest of the companies in the S&P 500 collectively lost about 4 percent.[1]

Superstar firms can be found in almost every sector of the economy, including tech, management, finance, sports and the music industry. They command increasing market power, which has consequences for technological, social and economic progress. It is, therefore, critical to understand how their advantages arose in the first place.

THE FORCES BEHIND THE SUPERSTAR PHENOMENON

The “economics of superstars” was first studied by the late University of Chicago economist Sherwin Rosen. Forty years ago, Rosen argued that certain new technologies would significantly enhance the productivity of talented workers, enabling superstars in any industry to greatly expand the scope of their market, while reducing market opportunities for everyone else.[2] Digital innovations, including advances in the collection, processing and transmission of information, is what Rosen envisioned would lead to the superstar phenomenon.

Digital technologies are information goods, which are different from the traditional, physical goods in the economy. What it means is that fundamentally different economic considerations apply. Unlike physical goods — a loaf of bread or a car — information goods have two key properties: They are non-rival and excludable. Non-rival means that something can be used without being used up. Excludability means that an owner of digital innovation can prevent others from using it, by protecting it with patents, for example. These two fundamental properties of information goods are what give rise to the superstar phenomenon.

In a working paper I co-authored with Professor Ding Xuan Ng at Johns Hopkins University[3], we described superstars as arising from digital innovations that require upfront fixed costs that allow firms to reduce the marginal costs of serving additional customers.[4] For example, once an online travel agency has programmed its website at a fixed cost, it can easily displace thousands of traditional travel agents without much additional effort, scaling at near-zero cost.

Because a firm can exclude others from using its digital innovation, it automatically gains market power. The innovator then uses that power to charge a mark-up and earn a monopoly rent — basically, a price superstars charge in excess of what it costs them to provide the good — which we call the ‘superstar profit share’.

THE POLICYMAKER’S DILEMMA

In a vibrant free market economy, businesses compete for customers by innovating and improving their offerings while keeping prices low; otherwise, they are displaced by more innovative rivals entering the market. Unfortunately, the increasing monopolization of the economy by technology superstars is weakening the competitive environment around the world.

Monopoly power is the main inefficiency from the emergence of superstar firms, because superstars can exclude others from using the innovation that they have developed.

So, what policy measures can be employed to mitigate the inefficiencies arising from the superstar phenomenon?

We do have antitrust policies designed to promote competition and hence economic efficiency. Authorities could take a drastic measure and break up monopolies. Or they could tax all those excess profits megacompanies make.

Another policy to consider involves giving consumers control rights over their data. Right now, only companies have that data, and they are selling it. If you free it up and don’t allow them to sell it anymore, it reduces their monopoly profits. And if you give consumers more freedom over their data, they could, for example, share it with the latest start-up and create a more competitive landscape.

However, such policy remedies can be a double-edged sword. On the one hand, they reduce monopoly rents. On the other hand, they can also reduce innovation.

Innovation requires investments in R&D, which represent a significant sunk cost that only large firms can afford. Government regulations can easily backfire, discouraging large firms from making long-term R&D investments.

What, then, is the best policy intervention? Professor Ding Xuan Ng and I believe that basic research should be public. Digital innovations should be financed by public investments and should be provided as free public goods to all. This would make the superstar phenomenon disappear, and the effects of digital innovation would simply show up as productivity increases.[5]

We live in a brave new world that is increasingly based on information. Because the information economy is different from the traditional economy, antitrust policy should be revamped to reflect that. Instead of worrying about the economy being eaten up by these gigantic monopolies, policymakers need to focus on the question ‘What specific actions can we pursue to make the economy more competitive and efficient?’

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