The banking industry is changing extremely quickly on both the retail and wholesale sides. Sometimes helped or threatened by new technologies and developments from third parties – both from fintechs and bigger technology companies such as Apple and Google – banks have to enhance their digital capabilities as a cornerstone to their offerings.
Contributed by Tibor Bartels, Head of Transaction Services Americas, ING
Retail and wholesale banking have changed dramatically over the last 20 years and that it will change even more in the next 20 years. These days, customers expect and demand easy ways to initiate transfers, see balances or communicate with their bank either via an online tool or an app.
The customer expectations are even raised further by what they see elsewhere in the market, with fintechs or tech companies.
Collective evolution, not internal revolution
The shift of customer expectations has impacted how we look at product development.Today we are leaning much more towards collaboration with fintechs or integrating products that are proven in the market, rather than to develop products ourselves. We don’t intend to reinvent the wheel but working with some of the strongest players in the market helps us to ensure we have a meaningful offering for our clients that is “future-proof”.
We are always asking ourselves the question as to how as a bank we stay relevant for our customers and we put our money where our mouth is by investing in new and innovative solutions for the market.
ING’s board fully realizes the importance of having a customer-centric approach to the market. While some banks are heavily investing in staying meaningful for their clients, others are sticking with the solutions they have and slowly becoming less relevant. If you are not working with a number of fintechs, I don’t think you have a future proof banking model.
Not about products, but about solutions
The role of the average treasury team is getting much more complicated. If you look back a decade or so, treasury was a cost center and very operational. Today, treasury teams face many extra burdens including fraud prevention, compliance, cost containment, harmonization of processes and so on. Corporates are looking for partners in the market that don’t just sell them products but provide solutions that help realize ambitions.
ING has made a number of investments over the last few years, in companies such as in Cobase, PayVision and TransferMate, for example.These actions prove that as a bank we are actively trying to improve the product offering for our clients.
This has always been in our DNA, take for example Bank Mendes Gans (BMG), it is a proven solution in the liquidity market, which is a big part of a treasury’s responsibility. BMG is a bank-independent plug and play solution that clients can lay over their global payments and cash management landscape, and it does the work for you. Essentially, this means we are part of your treasury team.
Thinking of new technologies and their practical application, we recently announced our part in co-creating a blockchain-based trade-settlement platform.
We have joined other global banks to create a digital coin that can be used to settle international money transfers instantly, cutting out intermediaries and lowering transaction costs. This is the next stage in the development of the utility settlement coin (USC) project set up by UBS a few years ago.
USCs, a digital version of existing currencies, can be used for payments and to transmit all the transaction data. It reduces the exchange rate risks of conventional transactions, making the payments and settlements process faster, cheaper and less risky. We had listened to our customers who had a predominantly documentary trade related business – if you have a lot of partners in Africa and Asia, this can be a full time job. This is where our experts looked at how to evolve this into a more modern way.
Looking to the future, we also want our platform to be a basis for other services that aren’t directly banking related. Using our platform as more of a fintech solution, if you have an ING online banking log in or mobile app, our goal is to also link that to other products from third-party providers.By providing just one entrance for all these different services, the bank would be even more meaningful. Especially taking into account that banks process large data flows which we can analyze to further improve our product offering to our clients. This fast changing banking landscape means we need to keep thinking ahead and finding innovative opportunities for partnerships and co-collaborations.
A quarter of banking customers noted an improvement in customer service over lockdown, research shows
SAS research reveals that banks offered an improved customer experience during lockdown
This represents some good news for banks in an extremely challenging time, with 59% of customers also saying they’d 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 banking customers using a digital service or app has grown by 11%, adding to an existing 58% who were already digital customers. Over half (53%) of new users plan to continue using these digital services permanently moving forward.
Brian Holden, Director, Financial Services at SAS UK & Ireland, said:
“It’s notable that in times of need customers value being able to communicate with their bank and place an even higher value on good customer service. A rise in the number of digital customers means banks can now reach a wider audience online, leveraging AI and analytics to offer a more personalised experience.
“There is work to be done, though. Even greater personalisation is needed if banks are to win over the 12% of customers who felt banking services deteriorated over lockdown. And this personalisation will need to get right down to a segment of one to properly reflect the unique circumstances some individuals now find themselves in due to the pandemic.”
While the number of digital users grew over lockdown, there is still a quarter (24%) of the banking customer base that have chosen not to make the switch to digital services.
Meanwhile, failure to offer a consistently satisfactory customer experience could prove costly for banks, with a third (33%) of customers claiming 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, so this just underlines how much retail banks can win or lose in these difficult times.
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?
Swedish Bank Stress Tests in Line with Recent Rating Actions
The Swedish Financial Supervisory Authority’s (FSA) latest stress test results show major Swedish banks’ robust ability to absorb credit losses. The results support Fitch Ratings’ view that short-term risks have abated in recent months, and are in line with Fitch’s assessment of major Swedish banks’ capitalisation at ‘aa-‘, which was a factor when Fitch removed the ratings of Handelsbanken, Nordea (not covered by the FSA’s stress test) and SEB from Rating Watch Negative in September.
The FSA estimated about SEK130 billion of credit losses over 2020-2022 for the three largest banks (Swedbank, Handelsbanken and SEB) under its stress test. This represents about 220bp of their loans, or about 70bp annually. However, the banks’ pre-impairment profitability in the stress test could absorb credit losses of up to about 110bp of loans annually. Fitch’s baseline expectation is for credit losses below 20bp of loans in 2020 and 8bp-12bp in 2021.
Capital remained strong under the stress test. The average common equity Tier 1 (CET1) ratio fell by only 2.8pp (1.9pp if banks did not pay dividends) from 17.6% at end-June 2020. The capital decline was not driven by credit losses, which could be absorbed by pre-impairment profitability, but by risk-weighted asset inflation.
The three banks’ 3Q20 results showed that capital has been resilient despite the coronavirus crisis. The banks had a CET1 capital surplus over regulatory minimums, including buffers, of almost SEK100 billion (excluding about SEK33 billion earmarked for dividends). SEB had a CET1 ratio of 19.4% at end-September, Handelsbanken’s was 17.8% and Swedbank’s 16.8%.
The SEK130 billion credit losses under the latest stress test are lower than under the FSA’s spring 2020 stress test (SEK145 billion), which also covered a shorter period of two years. However, they are still larger than the actual losses incurred by the three banks during the 2008-2010 crisis. This is despite tightened underwriting standards by the three banks in recent years, including, in the case of SEB and Swedbank, in the Baltics, the source of most of their loan impairment charges in the previous crisis.
In its baseline economic forecasts, the FSA assumes a harsher shock to Sweden’s GDP in 2020 and 2021 (-6.9% and 1%, respectively) than Fitch’s baseline (-4% and 3.4%), although it assumes a similar recovery by end-2022. It also assumes real estate price corrections, which appears particularly conservative in light of a 11% housing property price increase over January to November 2020.
The ratings of Handelsbanken (AA), Nordea (AA-) and SEB (AA-) are on Negative Outlook due to medium-term risks to our baseline scenario. The rating of Swedbank (A+) is on Stable Outlook, reflecting significant headroom at the current rating level following a one-notch downgrade in April due to shortcomings in anti-money laundering risk controls.
Future success for banks will be driven by balancing physical and digital services
Digital acceleration due to COVID-19 has not eliminated the need for bank branches
Faster service (23%), smaller queues (26%) and longer opening hours (31%) are among customers’ biggest asks of their bank branch, new research from Diebold Nixdorf today reveals. But with 41% consumers saying they would be comfortable to engage with all banking services via an app, it is vital that banks respond to the full spectrum of customer needs – balancing and evolving their offerings on multiple fronts.
A third (35%) of customers say they will always want access to physical, in-branch banking services in some capacity and one in ten (10%) consumers will never bank predominantly online in the future. This demonstrates that there remains an important role for the services a branch provides. This role, however, continues to shift away from purely transactional banking:
A quarter (26%) value face-to-face advice when it comes to their banking needs
One in five (18%) seek advice on different products
17% want to speak to the staff or other customers.
Matt Phillips, Diebold Nixdorf vice president, head of financial services UK & Ireland, said: “The majority of banks have spent the last decade focusing on their digital strategies and investing in improving – or establishing – their online customer experience. However, the data shows that there is still an essential role for physical branches. Banks now increasingly face the challenge of continuing to provide customers with access to a range of physical and as well as digital services, giving them the flexibility to choose the best service for them at any given moment in time.”
When looking beyond the impact of COVID-19, planned branch visits by customers are expected to rebound to 28%, following a dip to 11% during lockdown. And when asked about the new services they’d like to see inside their bank, sixteen percent of respondents said more self-service machines would improve their in-branch experience.
Matt Phillips continues: “In a world that is fast evolving and where the future is digital, there’s no doubt that high street banks must, and are, responding to the needs of highly digital customers. But not every customer requirement is digital. There is still a strong need for physical bank branches and the interaction and services they offer, and striking this balance between physical and digital is where the industry must come together to provide solutions. For example, building a strong, leave-behind strategy is something we’re seeing across the board when banks have to close branches, ensuring customers have access to self-service machines to complete all their transactional needs.”
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