Digital Banking Success Is Not Just About Major Investment

Bank branches may only have a place on the High Street for the next five to ten years – as Digital could lead to their demise….

 A joint MCA Year of Digital and Grant Thornton debate on Monday (5^th October) concluded that traditional banks have to go much further faster to rise to the Digital challenge. They need to be much more responsive to the variety and evolving character of their customers’ needs if both their Digital and traditional banking plans are to succeed.

 A mixed audience of consultants and senior banking professionals debated the topic with a panel of experts:  Eric Leenders, Executive Director, Retail and Private Banking, British Banking Association (BBA); Chris Brindley, Managing Director, Regional Banking, Metro Bank; Ewen Fleming, Partner & Practice Leader, Financial Services Group, Grant Thornton; Darrell King, Associate Partner, CSC; and Paul Connolly, Director of the MCA (Management Consultancies Association) Think Tank, who chaired the debate.

 Clicks and bricks…

The panel and audience were divided on the future of the high street bank. The consultants on the panel, financial services and Digital experts, argued that high street and branches have a place for the next five to ten years, and will adapt and evolve. However, a changing customer base demanding different digital interactions and services could ultimately lead to the end of banking as a bricks and mortar business.

Eric Leenders expected significantly deeper digitisation, but expected a ‘horses for courses’ approach in which some customers would continue to need face-to-face services via branches in the foreseeable future. Chris Brindley cited Metro Bank’s customer engagement initiatives and argued forcefully that customers would continue to demand this and that banks would continue to have a place on the high street provided they reinvented themselves as community banks. When polled, 80% of the audience agreed that high street banks had a future.

 Digital future…

Eric Leenders said in response to whether he thought the banks are rising to the Digital challenge, that they have no choice. He said: “If we consider the Digital agenda in its widest sense – this is the way we will increasingly live our lives – frankly it must happen.”

 Darrell King, Associate Partner at CSC added: “There are two indicators of change that we have seen. First, the appointment of dedicated professionals in infrastructure, so you will now get a Chief Digital Officer. Secondly, in the last 18-24 months, firms have been more holistic in their approach to tackling digitisation and interpreting what this means for them – whereas we previously found much more isolated capabilities.”

 However, Chris Brindley highlighted a lack of understanding of the customer needs was highlighted as inhibiting banks’ in their pursuit of Digital. “I think that there is some real ignorance in traditional banks. Historically they have not really understood the customer needs. I think banks need to spend a lot more money in a lot more different places to bring their standards up to what the customer demands.”

 Audience members agreed that customer service assumptions of the Digital Age did not yet mix well with the culture of banking. Agile approaches, the fail-fast, learn-fast ethos, and the use of open data to empower customers to self serve are novel and challenging approach to risk for banks, especially as they have to demonstrate, more than ever before, that they are safe as houses. Polling revealed that two thirds of audience members thought their bank needed to do more to rise to the Digital challenge.

Dealing with the past…

Legacy systems have hamstrung many of the large banks’ Digital innovations. But can the banks go further faster with these legacy systems, or do they need to rip them out to make any progress at all?

Ewen Fleming said: “The challenge is that it is really difficult to rip out everything you’ve got and still continue service. It’s like decorating and rewiring your house and still being in it. That’s going to be hard but there is no doubt that the way they have approached this has not been right.

 Banks are in different places, but we are at a new dawn when they’re realising it can’t be tactical, they need to start thinking about it differently, and think about how the consumer sees its.”

 The banking crisis has taken its toll…

Panellists agreed that since the financial crisis of 2008 banks had focused on rebuilding their capital base and making sure that they’re Basel compliant. This energy, attention and investment has meant that as the economy returns to health, banks are behind other sectors such as retail in the extent of their Digital reinvention. Indeed, Eric Leenders noted that larger banks still have ongoing legacy liabilities. “They are still paying out £300-350 million per month on PPI. These are non-trivial sums that need to be considered – along with mandatory change – around the board table before a [digital] strategy can start to come through to full effect.  And it’s only now that we are starting to see that.”

 But banks do have an advantage… 

Against the possible threats of Google and the other Digital giants, banks do have a strong card to play: the data they possess. This data is valuable to them and also provides the basis for value-creating partnerships with Digital innovators. Ewen Fleming added: “This is something that I would start with, and I know that many are starting to look into that, although this is a scary subject in terms of how you sift through that data and take the learnings and insights.

 “Another aspect of this is that you don’t have to do it all yourself – there are actually alliances and partnerships with people that are more expert at doing this. Think quickly, test something, learn quickly and bring something to market. Santander has already started to do these alliances with the likes of Monitise, Funding Circle and Uber.”

 The future…

The panellists and audience concluded that banks are evolving rather than undertaking a real revolution in Digital and in what it means to be a bank in the modern age. A more thoroughgoing reinvention, be that in their Digital culture or in their community identity, is needed.

 Paul Connolly, Director of the MCA Think Tank, and chair said: “In some ways it is surprising that banks have been slow to rise to the Digital opportunity. After all, their investment and transaction networks have been hi-tech since before the Big Bang in the 1980s. But this seems to have led to an accretion of legacy systems, often leading to single customers having multiple identities in one institution. Coupled with a conservative culture, this seems to have put many behind the curve in terms of Digital and other reinventions.

 “But there’s great potential. MCA member firms report that after the trials of the financial crisis and its aftermath, banks are starting to give serious thought to strategic challenges. Digital and the related theme of the high-street presence are at the heart of these challenges.

“Having started behind the curve, the trick will be to get ahead of it. The future of banking won’t be decided by anyone in our panel and audience. It will be decided by seven, eight and nine-year-olds: expert iPadjockies, who learn using interactive games, whose pocket money is paid virtually. Ten years from now they will want to manage their pay or student loans. Wise banks will try to anticipate what sort of service experience they will expect.”