By Nanda Kumar, CEO of SunTec
Global businesses across all industries face tremendous challenges around how to capture market share, retain existing customers and attract new prospects. In disruptive times like these, customer loyalty is particularly brittle, and ironically crucial to the survival of many organizations. Banks are no exception.
To thrive and grow, banks must identify how they can be more customer-centric, offer enhanced transparency, deliver customized capabilities and maximize their assets to showcase their value across each step of the customer journey. This new way of thinking for many banks will require them to reimagine their core technology, foster strong partner networks and understand the true meaning of digital transformation, all while placing empathy and agility at the heart of their strategy.
Despite the new difficulties banks face, the current pandemic can also serve as a catalyst to accelerate long-overdue initiatives, according to new research by Boston Consulting Group (BCG). Financial institutions are uniquely positioned to adapt and optimize their existing assets to achieve customer remediation. They already retain detailed intelligence on their customers, have established methods to interact with them, and can aggregate and analyze data to offer a superior customer experience. Banks that emerge stronger from this pandemic will be those that move towards a model that enables them to deliver on customers’ expectations through technology innovation that also helps them to control costs and differentiate themselves from competitors.
Customization is king
As the lines between what traditional banks and fintechs can offer customers continue to blur, the way banks develop, deliver and improve hyper-personalized customer experiences will define who gains and retains customers in a COVID-19 shaped world.
Big tech companies like Facebook, Google, Apple and Amazon have successfully crossed into the financial services market and changed the game for incumbent players. Their business models are built on customization, prioritizing user experience and the customer journey to maintain their existing customer base and grab increasing market share from traditional players. These tech companies understand how to leverage customer data to provide the ultimate personalized experience and use it to suggest – and even predict – the customer journey, setting the standard for consumer expectations. The sheer power, size and reach of these companies has left many traditional participants unable to compete. With a daily presence in consumers’ lives combined with significant capital, existing customer data and strong brand loyalty, big tech and fintechs have become the drivers of innovation – and have pressured traditional banks to rethink how they can focus on customer-centricity and strive to own the customer value chain.
Challenger banks and fintech providers have enjoyed a high level of trust among customers due to their service-first models that build consumer confidence and encourage loyalty. As traditional banks struggle to retain existing customers, they are also losing out on valuable insights that could help them attract new customers, especially millennials, and offer them a transparent and customized experience vs. merely a product.
Millennial needs are influenced by two key factors. One, millennials grew up on the technology of today. A smartphone is their very own personal life assistant used to shop, entertain themselves, learn, work and manage their financial health. Banks need to take this almost fundamental reliance on technology into account when designing new services that resonate with the unique needs of millennials. Two, banks must also recognize the employment and income stability that traditionally affects this generation, something which has been made even more insecure because of COVID-19 and the knock-on economic effects. As the banking experience evolves from product-based to customer-based, financial institutions will be pressed to find new ways to deliver the hyper-personalization services that customers, especially younger people, expect.
Pandemic pressures mount
Banks must be able to quickly adapt to changing goalposts, new customer requirements and continued disruption. The market volatility resulting from the pandemic has taught us that the only thing the banking industry can be certain of in this environment is more uncertainty.
This will require banks to recast their strategies, roadmaps and budgets so they can respond to today’s challenges, prepare for future business disruptions and ensure they retain existing customers while appealing to new targets. Now is the time for them to modernize their legacy technology systems, enable end-to-end agility and focus on flexibility, scale, and speed to accelerate their digital transformation and excel in a competitive and turbulent landscape.
Leveraging a modular approach and smart partners
Banks recognize they need to take a modular approach to digital transformation and balance their focus between user friendly front-end channels such as mobile, app and web, and critical yet less flashy middle and back-end systems. While there are many options to modernize legacy banking systems, simplifying complex operations and infrastructure should be step one and represents a low risk method to start the digital transformation journey.
Banks can avoid having to replace their stable core systems by embracing intelligent technology and partners to create the right service bundles for their customers. Adopting a digital core, ‘hollowing out’ customer engagement functions from the core system and managing it as a horizontal cross-enterprise layer will reap multiple benefits to banks. It will enable them to enhance product innovation, deploy sophisticated customer data management, expand their partner ecosystem and improve revenue management and pricing.
By leveraging their existing robust infrastructure rather than overhauling their entire systems, and utilizing technology partnerships that provide economies of scale, banks can cleverly ensure the agility, flexibility and budget required to make their digital transformation plans a success. This approach will enable banks to quickly adopt new technologies, add functionality and capabilities, enhance the user experience and provide customized internal and external products and integrated services– all while maintaining ownership of the complete customer relationship.
Financial customer data in high demand
Undoubtedly, the entry of fintechs and bigtechs has changed the way the industry views and uses data. This has created privacy concerns and anxiety around confidential customer data as high-profile data breaches make the news and push regulators to play an increasingly prominent role.
Banks and financial institutions have a surplus of customer data from individual accounts and insight into how the individual or household spends and saves. The ability to maintain access to that data is so valuable that fintechs and data aggregators have been particularly eager to get more access to sensitive data, as responsible handlers. This ‘battle’ over information has escalated in the absence of clear rules and lack of bank regulators’ ability to oversee aggregators as they usually don’t have direct relationships with those banks.
Banks have the responsibility to safeguard their customers’ data and leverage it to build the empathetic bank of the future. That bank will help protect customers from fraudulent behavior, cybercriminals and illegitimate financial activity that could occur if customer data ends up in the wrong hands. As the main ‘gatekeepers’ of financial customer data, banks are also tasked with making smart use of their data to uncover the context behind banking transactions, understand their customers’ ultimate goals and add value to every interaction. Data has the power to enable empathetic banking and help humanize the banking experience – a true competitive differentiator.
At the centre: empathy and agility
Banks must strive to keep empathy and agility at the centre of their strategies to best serve the customer of tomorrow. That means embracing customer data to ensure their offerings add real value to the customer journey. By creating and maintaining access to consolidated data, banks can quickly respond to consumers’ evolving needs and seamlessly access this data by building a digital core layer in their functionality, which captures and meticulously logs the data from every customer interaction, personal information, purchasing pattern and more.
Smart banks will leverage their customers’ information to offer service-first models built on trust and loyalty, while ensuring transparency for both customers and potential regulatory requirements. The bank model of the future is rooted in empathy, understands the customer’s needs, drives customer retention and ensures the long-term health of their business. By humanizing banking, banks will soon realize it empowers them to innovate faster, future-proof their business and reduce costs all while enhancing the customer experience. The end result will be a transition to an agile, customer-first organization that demonstrates it listens to its customers’ evolving needs, which today is certainly the need of the hour.
Open Banking: the perfect pandemic tool – Equifax comments
With COVID-19 related financial fallout set to dominate the credit landscape in 2021, Dan Weaver, Open Banking Expert at Equifax UK, believes Open Banking solutions can provide lenders clarity in a sea of uncertainty:
“With lockdown once again in place across the UK, it’s clear 2021 will be a year of extreme financial flux. While the vaccine roll-out programme will provide an economic boost and eventual easing of restrictions, forbearance measures, such as mortgage holidays and the government furlough scheme, will be wound down. This will lead to income shocks for many, and the potential for a nationwide surge in personal debt.
“With the third anniversary of its implementation today (13 January), Open Banking is entering a new mature phase of its development. The initiative’s credentials are now widely established, offering creditors the perfect pandemic tool to assess the most accurate picture of an individual’s finances.
“Consider someone who has just returned to the workforce after being made redundant or placed on furlough. Traditional credit bureau or legacy data alone would not always provide potential lenders with the most up-to-date information on their current financial circumstances and ability to repay credit at the point of application. Open Banking platforms, through customer consent, pull live data directly from the user’s bank account, allowing creditors to make an informed, responsible and fair decision about their current affordability on the most recent data available – a game-changing factor amid such widespread financial upheaval and rapid change in people’s circumstances.
“Open Banking is a tool for our times and it’s vital more credit providers, not just big banks and finance but utilities, insurance, auto and telcos companies, accelerate its adoption. Throughout our society and economy in the past year, we’ve witnessed feats of great innovation, executed at rapid speed. In 2021, we need to apply this transformational energy to the Open Banking landscape, slashing the time it takes for creditors to test protocol and fully set up their solutions.
“Three years after its arrival, we’re seeing Open Banking platforms improve digital, real-time income verification rates by more than 25% * – which is no mean feat. If an industry-wide, mass acceleration strategy was successfully achieved in 2021, it would prove extremely valuable and timely, and lead to better customer and creditor outcomes throughout the credit space.”
Over a quarter of Brits now have an account with a digital-only bank
The number of Brits with a digital-only bank account has gone up by a percentage increase of 16%
Almost 1 in 6 Brits (17%) plan to open a digital bank account over the next 5 years
The top reason for opening an account was the convenience of banking online for the third year running
However, 16% of traditional banking customers who aren’t planning to switch said their bank had been helpful during the COVID pandemic
Currently over a quarter of Brits (27%) say they have at least one bank account with a digital-only bank, according to personal finance comparison site finder.com.
This is a percentage increase of 16% from last year when 23% of Brits said they had an account with a digital bank. It is also over 3 times the amount of Brits who had one in January 2019 (9%).
Finder’s 2019 research found that 24% of Brits intended to have a digital-only account by 2024. However with 27% now having an account, Brits have gone digital 3 years earlier than expected.
A further 17% of Brits intend to join them over the next 5 years, with 11% planning to do so over the next year. This could mean that 44% of Brits could have an account with a digital bank by 2026. If this percentage were applied to the UK adult population, it would equal almost 23 million people.
The top reason for opening an account continues to be convenience that digital-only banks provide, for the third year running (26%). The second most common reason was that users needed an additional account and setting up a digital account seemed to be the easiest option (20%). Customers also wanted to transfer money more easily (19%), making this the third biggest priority.
People wanting a trendy card is still driving signups as well, with 1 in 10 (10%) existing, or future, customers citing this as a reason to get an account.
Despite the increase in digital-only banking customers, the numbers who aren’t considering one have actually risen. Last year, 23% of respondents said they aren’t considering a digital-only bank account, but this has risen substantially to 42% in the latest survey.
This is likely a result of increased customer loyalty, 58% of those without a digital bank account said they felt as though their incumbent bank had treated them well and therefore had no desire to open a digital bank account. Additionally, 16% felt as though their incumbent bank had performed particularly well during the pandemic.
Over a third (36%) of those without a digital bank account said they had not decided to bank with digital providers because they preferred to be able to speak to someone in branch.
Digital banks are still most popular with younger generations, 46% of gen Z say they currently have a digital bank account, with a further 28% intending to get one over the next 5 years. This would mean that by 2026 just under three quarters of gen Z (73%) could have a digital bank account.
To see the research in full visit: https://www.finder.com/uk/digital-banking-adoption
Commenting on the findings, Matt Boyle, banking specialist at finder.com said:
“This research shows that digital-only banks are here to stay, with the number of users in the UK rising for 3 years straight. On top of this, Starling and Revolut announced this year that they have made a profit for the first time, really demonstrating that digital banks are starting to become a serious part of the banking furniture.
“The pandemic has also played a role in the rapid digitalisation of the banking industry, with those who had never experienced online banking having no other choice but to take their finances online. It seems that Brits are starting to realise the convenience that can come with digital banking and this is reflected in our research.”
Finder commissioned Censuswide on 6 to 8 January 2021 to carry out a nationally representative survey of adults aged 18+. A total of 1,671 people were questioned throughout Great Britain, with representative quotas for gender, age and region
The Impact of the Digital Economy on the Banking and Payments Sector
By Gerhard Oosthuizen, CTO Entersekt.
New banking regulations, digital consumers, the eradication of passwords, contactless technology – these are just some of the trends that will shape financial services and payments in 2021, writes Entersekt CTO, Gerhard Oosthuizen.
Since the outbreak of COVID-19, traditional businesses have been compelled to further undergo the digital transformation to meet the needs of a consumer base largely confined to their homes. Indeed, we estimate that there has been a 30% growth in the digital space. With this acceleration towards a digital world, banking, transacting and payment trends have and will continue to be redefined into 2021.
We have witnessed a rising number of digital first timers. That is, people signing up for online banking and e-commerce, whilst progressively shifting away from traditional channels. Businesses that have previously depended on walk-in stores and having a physical presence have also had to recognise that online transactions are now the new norm, and to adjust accordingly.
Whereas in the past, registering a customer for a service could take place in a shop, a booth or a branch, today it has become more important than ever to have a remote digital registration option available as well. Even working behaviour has changed considerably, with many businesses accommodating for remote working in the long term.
This is what sets the scene for 2021 – people expect to work from home as well as carry out their transactions from home.
Banking and Payment Trends in 2021
The use of contactless technology is undeniably growing, but on top of more people tapping with their cards, we are also seeing much more engagement with QR payments. A technology already frequently employed in Asia, we know QR codes can work. It would enable consumers to authenticate themselves when making a transaction without needing a PIN pad. More importantly, it allows consumers to gain complete control of their transactions from their own device and have an overall richer experience. Recognising this, we anticipate noteworthy developments in QR and NFC-enabled tap and go payments over the next year.
In light of FIDO (Fast Identity Online) and the ever-expanding network of FIDO-compliant solutions, we also expect the emergence of entirely passwordless systems. Organisations will likely begin enlisting customers by way of biometric authentication through devices and digital identities that already exist, such as banking apps. Long gone will be the days of having to remember numerous passwords, only to forget and reset them again. That is the idea anyway.
In 2021, there will probably be a pronounced adoption of delegated authentication as well, whereby
merchants as opposed to traditional issuing banks will take the reins of authenticating e-commerce payments. In this way, consumers will be offered a greatly improved online shopping experience with a simple and intuitive checkout that acts as an extension of the retail brand.
The Challenge of PSD2
While each of these transitions will undoubtedly introduce growing pains, PSD2 will be among the most challenging. Europe is already going through PSD2 now, implementing a number of regulations that is opening up competition in banking and electronic payment services. However, on the 1st of January 2021, these regulations will take a legal effect. At the end of the first quarter, so too will another set of regulations concerning 3-D authentication of card-not-present payments. Europe is simply not prepared to make this leap into “open banking”. As such, banks will face a tough year of struggles with regulators and competition from non-traditional quarters.
In fact, the process towards becoming PSD2-compliant is often arduous for banks and recoups hardly any additional revenue. Many banks see it as a competitive disadvantage as they are being forced to open up their systems and processes for the likes of Google, Facebook, Apple and many smaller niche fintech operations. Their valuable client data risks being taken by a challenger and used to on-board their accountholders.
Regardless of the commercial opportunities that open banking may provide, fraudsters will also endeavour to take advantage of this change and the weaknesses that will appear as systems open. With money moving faster, the faster it can be stolen too. We will likely see some reaction to this in 2021 as fraud returns to being a top priority for banks. Yet, whether through regulatory pressure or by market forces, open banking will become the new normal – and the world needs to prepare for this. Hopefully, many lessons will be learned from Europe’s experiences in 2021.
Next year is going to be about change – and managing that change without alienating already unsettled consumers. Organisations that have customer experience top of mind will emerge as winners, but they must nonetheless expect additional pressure from regulators, new competition, ever more digitally-demanding consumers, and no slowdown in technological innovation.
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