Mark Roper, Commercial Director, Collinson Group
As we begin 2016 the large retail banks still command the vast majority of the market but new competitors continue to emerge, from new retail banks such as Starling and Metro Bank, to financial services disrupters such as Transfer Wise and gocardless who are creating cheaper banking processes that give a better consumer experience.
The Current Account Switch Service reports that 2.25 million people had used the service to change banks but this belies the ‘hidden transactions’ where consumers use an alternative financial service provider, without banks realising they have lost a transaction.
This year will be an interesting one, where we see significant investment and also important decisions about the type of services banks will offer in the future. We see five key challenges that are threatening the status quo, and offer potential resolutions that financial boards could adopt to mitigate the risk of disruption.
- The interchange conundrum
- Financial services providers have traditionally funded their reward and loyalty programmes through the interchange fee levied on merchants for the processing of credit and debit card transactions. The European Union has regulated these fees, meaning that in the UK alone merchants stand to be £480 million better off, with banks and card issuers losing out.
- This change is already impacting the industry. Similar government legislation in Australia has led to Citi rapidly scaling back its customer loyalty benefits.
Resolution: Financial services providers must think creatively about how they attract and retain customers in spite of this funding gap. In the very short-term, charging for other services can close a funding gap. In the UK, we are already seeing that banks are raising current account fees to cover the interchange shortfall. At the same time, six of the UK’s biggest lenders have started cutting savings.
A more progressive approach might be to work more closely with merchants who may now be more willing to fund loyalty in partnership with banks, as long as they can be sure that they are getting incremental business for their investment. Adding truly valuable ancillary services and products that customers can buy can help create a new revenue stream, while at the same time stopping consumers going to new providers for these products.
- Develop the brand experience
- In the past, a common frustration regarding loyalty programmes is that it is too hard, and that it takes too long to earn enough points to access the best rewards. Consumers often feel that redemption processes are too complex and do not offer a wide enough range of appealing rewards.
- Moreover, consumers now expect reward programmes to have some level of personalisation that caters for their individual interests. A £50 bonus for opening up a current account is no longer a persuasive incentive to new customers, nor enough to encourage someone to switch their existing bank. Even the possibility of redeeming for a set of golf clubs might not be enough of a compelling reason to join a loyalty programme.
Resolution: In order for banks to build loyal and satisfied customers, they must think about personalising their customer experiences. For example, Nationwide has personalised the world of the ATM, which recognises customers prompting a personalised offer to withdraw their usual amount. It is at this relationship level (where the customer feels as though the bank knows them), and not at the product level, where the future of loyalty lies.
Furthermore, banks need to position themselves as a destination for services, so that relationships become sticky and engaging. Customers should be able to trust that their banks can operate as a ‘one stop shop’ for multiple products and services. Our research indicates that personalised and relevant communications, rewards and service, regardless of how customers choose to interact with a bank, is important for consumers all over the world.
- Existing in isolation
- Banks hold vast amounts of customer data – from earnings to spend patterns and travel behaviour. Yet this vast wealth of data remains largely untapped and stuck in product silos.
- A sizeable barrier to innovation comes from legacy IT infrastructure that does not allow financial institutions to interrogate data and derive actionable insight from it.
Resolution: Investment in data analytics and prioritising customer insight will allow banks to gain a greater understanding of what motivates their profitable customers. This will open up previously unseen possibilities, such as partnerships with brands outside of the organisation.
For example, peer-to-peer lending platform Zopa has recently partnered with Metro bank. For the first time a retail bank can earn a return by lending millions of pounds each month directly to UK consumers through Zopa.
Armed with insight banks can also think beyond financial services partnerships too, such as offering airline lounge access or concierge services or allowing customers to pay for lifestyle services with accumulated loyalty points.
The opportunity remains to reward customers for their loyalty in a manner that reflects their product holding and patronage and only a single customer view will facilitate this approach.
- Digital differences
- Traditionally, banks have considered investment in digital as a smart way to reduce costs — both in terms of personnel and real estate, rather than create an engaging, personalised customer journey.
- Both retail and business customers are increasingly demanding digital services that are richer and more immediately available. These will meet the demands of how they wish to consume information and make purchasing decisions that recognises them and makes their lives easier.
Resolution: There is a real opportunity here for the boards of financial organisations to think beyond cost saving, and invest in innovation for the customer, whether that be through exceptional service delivery or a new and convenient way to access platforms while on the move. Several European banks, including Barclays, have begun a video banking service that allows high net worth customers to speak to and see advisers at any time, seven days a week.
Delivering customer loyalty and enhancing customer experiences in this way needs to be higher up the board’s agenda as digital platforms can be invaluable in gaining deeper understanding of customer behaviour. The result is the provision of value that is based on customer needs, which in turn will drive revenues for financial organisations.
- A clear identity
- Banks must understand who they are in the new world of digital disruption. This is not about branding, but instead a deeper exercise in knowing which services to continue to provide, which to jettison, and which new spaces to move into.
- The new challengers are focussing on particular aspects of banking, be it foreign exchange, peer-to-peer lending, current accounts, or mobile payments. The established players must wrestle with these specialists to remain relevant and encourage bank-wide loyalty.
Resolution: Instead of thinking about customers within traditional demographic boundaries or income-based segmentation, retail banks should be identifying and targeting customers based on behaviour and motivations. For example, Collinson Group research recently identified four groups of people within the top fifteen percent income bracket – the middle class mass affluent consumers. Findings indicate that these groups do contrast in the services that they want from financial brands, for example a large proportion value face-to-face interactions as well as digital services, while others prefer mostly digital experiences. Recognising these differences enables banks to build more engaging relationships with their customers.
2016 promises to be a year to watch as the fintech revolution matures, and it will be intriguing to see how the banks start to face-up to these challenges. The year ahead is a chance for financial service organisations to trial new projects, and test new loyalty initiatives to build bank-wide loyalty to retain profitable customers and even attract new ones.
How open banking can drive innovation and growth in a post-COVID world
By Billel Ridelle, CEO at Sweep
Times are pretty tough for businesses right now. For SMEs in particular, a global financial and health crisis of the sort we’re currently witnessing represents a truly existential risk. Yet there is hope of a brighter future. Digital transformation is already helping organisations in countless sectors, with everything from building supply chain resilience to rolling out potentially life-saving contact-tracing schemes. Yet it’s not just delivering transformative benefits in grand projects like this.
Thanks to open banking rules, a new wave of fintech innovation is sweeping the globe, offering business leaders a new launchpad for success. Even something as simple as corporate expenses can be transformed by the power of open data — to help firms cut costs, reduce fraud risk and become more productive.
Opening up data to innovation
It’s easy to get bogged down in the technical details of open banking, and the slew of new acronyms it has ushered in: Third Party Providers (TPPs), Account Information Service Providers (AISPs), Payment Initiation Service Providers (PISPs), and Application Programming Interfaces (APIs). Yet at the heart of the open banking revolution is a simple concept: the idea that forcing banks to open up their customers’ financial data will create more competition, and fresh opportunities for market entrants to create innovative new services.
This was at the heart of the UK government’s world-leading strategy when it was introduced back in 2016. A revised EU payment services directive (PSD2) gave it legal teeth, mandating that all payment account providers in the region provide third-party access for customers that want it. The push is also about reducing banking fees and enhancing financial inclusion, of course, but it’s in competition and innovation that the benefits really shine for businesses.
Access to real-time financial data via open APIs has already resulted in a range of new services which are helping businesses ride out the current economic storm. Whether it’s capabilities that can help freelancers prove loss of income to receive targeted loans, or services designed to streamline business processes to reduce costs and fraud — examples of innovation are endless.
What’s more, it’s already global. Aside from the PSD2, open banking rules are taking shape in Australia, New Zealand, Japan, Singapore, Hong Kong, Mexico and elsewhere. According to frequently cited Gartner predictions, regulators in around half of the G20 countries will create an open banking API regime over the coming year.
In the UK alone this is set to create a £7.2 billion revenue opportunity by 2022, with 71% of SMBs and 64% of adults expected to adopt it by then, according to PwC.
Making expenses pay
Corporate expenses and travel management might not be an area one immediately associates with high levels of innovation. But here too, open banking is having a profound impact. By combining automation, in-app approvals, integration with corporate policy and secure open banking APIs, companies like Sweep are offering new ways to solve old problems.
Part of the legacy challenge relates to productivity. Managing corporate travel costs and expenses was cited last year as the biggest concern of the UK’s small and mid-sized firms. Separate research claimed that SMBs are estimated to lose over £8.7 billion annually due to the time it takes employees and managers to complete these menial tasks. By automatically integrating real-time corporate bank account information into an easy-to-use app, we can save up to 15 hours a month on data input and travel administration per employee. That’s all time they could be spending on growing the business.
Another key area of concern is fraud. According to some estimates, fraudulent expenses claims could be costing UK firms £1.9 billion each year. In the US, the figure could be approaching $3 billion annually. Whether it’s the result of submitting expense claims for personal purchases, claiming for additional mileage on work trips, or over-claiming for other items, it all adds up. What’s more, fraud tends to spike particularly during times of recession, when normally diligent employees look for ways to supplement their income.
In this use case too, there are benefits to be had from open banking-powered solutions. Traditional manual processes offer too many gaps that can be exploited by fraudsters. Submitting paper receipts to finance departments — which must then input the information into spreadsheets or accounting software — is slow, error-prone and lacks accountability. However, with modern digital systems, transactions are automatically fed through from bank account to expense management platform. Here they are seamlessly checked according to policy and automatically approved, rejected or flagged for further investigation.
The future’s open
Thanks to the power of open banking, innovative fintech use cases like this are transforming operational challenges into opportunities to cut costs and fraud risks, improve employee productivity and become more strategic. With real-time data fed through from corporate bank accounts, finance directors can better understand spending patterns, react with greater agility and gain the insight they need to run their businesses more efficiently.
So what of the future? The good news is that open banking is only just getting started. As more sophisticated machine learning algorithms are developed, it has the potential for even greater disruption by empowering SMEs with predictive analytics and forecasting tools, or more accurate fraud checks, for example. Those in Europe may benefit most as PSD2 allows businesses to use tools that work seamlessly and securely across markets, without requiring any duplication of work.
In fact, open banking is not just good for individual SMEs, it’s important for Europe as a whole if we are ever to nurture successful digital unicorns to compete with those coming out of the US and China.
Open banking been described in the past as a quiet revolution. With the right buy-in from business and the continued innovation of digital platforms, it may soon become a full-throated roar.
Banks take note: Customers want to pay with points
By Len Covello, Chief Technology Officer of Engage People
‘Pay with Points’ – that is, integrating the ability to pay with loyalty reward points directly into the online check-out process – is a trend that is growing exponentially with big-name brands like Amazon, PayPal and American Express leading the way.
The past few months have posed an unprecedented challenge in the loyalty space, especially with the pandemic’s impact on travel. The unforeseen impacts across the board have caused institutions with premier incentive credit cards to feel increased pressure to retain their loyalty members. As such, exploring innovative ways to create a personalized loyalty experience for customers is at the forefront now more than ever.
Offering the flexibility to pay with points is certainly one option that can help transform financial institutions’ (FIs) loyalty programs. With the evolution of consumer preferences – like relying on other forms of payment outside of credit and the move towards contactless payments – viewing points as currency naturally ties into the “new ways” in which American consumers bank, pay and shop.
Personalization is a win-win for banks and loyalty program members
As the world continues to evolve in light of the pandemic, consumer habits like mobile banking and shopping online for groceries are likely to carry over long-term. As a result, consumers will expect their loyalty programs to provide new incentives to fit their ever-changing needs. By offering loyalty program members the ability to pay with points for the items they want or need during the online check-out process, FIs are creating a more personalized shopping experience. This can help increase member retention, especially compared to dated loyalty programs that offer limited options for point redemption.
As we’ve learned with iPhones, tap to pay and other technologies that reduce friction, once consumers begin using a new and convenient digital service, there’s little desire to go back to the old way of doing things. By incorporating pay with points into loyalty programs sooner rather than later, FIs will be setting themselves apart in terms of meeting their member’s needs with modern payment offerings.
Outside of providing a personalized experience to loyalty program members, pay with points as a program perk also has specific benefits when it comes to a bank’s bottom line. Currently, there are billions of dollars in liabilities in the form of unused points sitting on banks balance sheets. This is in part due to loyalty program members inability to spend their points how they want. By allowing a more personal and flexible way to spend points, banks can reduce those liabilities while creating a more engaging experience for their members.
Meeting consumer demand is easier than you think
Incorporating the infrastructure to power new digital capabilities is more often than not a cause for concern: how expensive will it be? What does down time look like? How long will it take to get up and running?
Luckily for banks, the process is actually quite simple – and inexpensive. With a lightweight integration of a few APIs, banks can tap into a pool of retailers to make their merchandise available for purchase with points by loyalty program members in no time. And as the retail network expands, there’s no need for additional IT work to add new brands into the fold. Ultimately, API integrations upfront create a frictionless and scalable solution for FIs and a preferred shopping experience for members. And based on market feedback, the personalized experience that results from giving customers the option to spend points as easily as they would cash or card, far exceeds any initial inconveniences that may arise.
According to our recent Customer Loyalty Survey, 75% of customers are more likely to spend loyalty reward points to make a purchase over other payment methods. The findings also indicated that 72% of customers are actively engaged in loyalty programs because of the available redemption options.
Long-term loyalty is not just about acquisition or promotional material, but rather the experience of redemption and viewing loyalty points through a fresh lens. Customers today are well-versed in what’s available to them online. The more redemption options offered to the consumer, the more appealing the FI becomes.
Loyalty point redemption in action
In April of 2020, when the world was mostly in lockdown, we looked at how a select group of approximately 3,000 consumers spent their loyalty reward points, comparing April 2020 to April 2019. Key findings suggest that, if given the opportunity, consumers will spend their loyalty points to buy what they want or need based on their specific circumstances. For example:
- Significant increases in the purchase of outdoor items like BBQs and smokers (+3401%), fire pits and heaters (+2644%) and pool and patio accessories (+1297%) suggested people were making the most of the spaces around them.
- Consumers were focusing on their personal health and well-being with the increase in points spent on fitness accessories (+1664%), bike accessories (+1453%) and fitness trackers (+536%).
- Finally, the increase in purchases of hand-held power tools (+3076%), smart control lighting (+1750%), stick vacuums (+1096%) and specialty small appliances (+531%) suggests consumers took advantage of the opportunity to check projects off their at-home to-do lists.
We’re keeping a close eye on how loyalty point purchases evolve as more retailers and FIs get on board with viewing points as a true form of currency, especially in a post-pandemic world. Which items will rise to the top in the coming months and years as the payments ecosystem evolves? Will flight purchases or experience-based purchases regain popularity?
What’s next in the loyalty payments space?
As consumers continue to look for alternative payment methods, offering the flexibility to pay with points is the perfect opportunity for FIs looking to reinvent their loyalty programs. Engage People has always viewed loyalty points as a fiat currency, creating innovative technology that allows for easy integration that satisfies loyalty program members’ needs.
In the future, there’s a real opportunity to incorporate loyalty reward points into everyday life – extending beyond the online shopping experience. Imagine a world where you can pay for coffee, your bills, monthly subscription services like Netflix or make charitable donations with loyalty points just as you would with a credit card or cash. The future involves a mindset shift by consumers, financial institutions and the entire payments ecosystem, and that shift is viewing loyalty points as a true form of currency. Like reaching for cash, a debit or credit card, loyalty points can easily become a payment option of choice for consumers. FIs that are at the forefront of this trend now have the most to gain long term.
The Importance of Liquidity Solutions
By Justin Silsbury, Lead – Product Manager at Infosys Finacle
Economic uncertainty and business complexity have made a deep impact on corporate treasury management in recent years. With regulations getting tougher, funding becoming elusive, and profits shrinking fast, the way liquidity is managed is making a real difference to companies’ survival. As corporate treasurers around the world struggle with the challenges of liquidity management, they are turning to their banks for support; it is imperative that the industry respond with digital solutions that enable clients to manage money efficiently at low cost.
Why corporates need liquidity solutions
Corporate banking customers need a liquidity structure that maximises security, liquidity and yield. Even today, treasurers in multinational corporations lack visibility into their companies’ overall cash position across countries and currencies. Delivering returns on excess cash, although important, is not a priority for them, but making sure the money is safe and available when needed, is. Therefore, a liquidity solution should be able to consolidate a company’s cash position across all its accounts around the world, provide a unified view in real-time, as well as offer timely suggestions on maximising utilisation and yield. It should automate all these functions as far as possible to reduce both manual overheads and the risk of moving money manually on a daily basis.
Broadly, liquidity solutions are of three types – cash concentration solutions that automatically move money around the world; interest optimization solutions that reward customers based on their aggregated balances without the need to move any money; and investment sweeps that move all the consolidated funds to a money market fund or other short-term investment to earn extra returns.
And why banks should provide them
There are several reasons why banks should invest in a sound liquidity solution. The most important one is that without it, a bank can never become a customer’s principal financial institution. A large corporation will have many banking providers, each one trying to increase share of wallet; in this situation, a high involvement product such as a liquidity solution is particularly effective for building stickiness and strengthening a bank’s position vis-à-vis others. An illustration may be useful here: say a food retail chain banks with Santander in the U.K., and other banks across Europe. If the retailer chooses to consolidate its cash daily into its U.K. account using Santander’s liquidity management solution, where the excess cash can then be swept into an investment vehicle overnight, over time, Santander can cross-sell other products to the client to increase revenue and stickiness.
Technology does it
Corporate banking has historically lagged retail banking in technology adoption. It is high time that banks remedied this by digitizing their corporate solutions. Specifically, they can leverage a variety of digital technologies to provide clients instant access to liquidity, global visibility into the overall cash position, and efficient working capital management. With robotic process automation and machine learning, they can simplify and automate processes to cut cost and lead-time. Blockchain enables banks to offer fast, secure, cross-border transactions, while open APIs ease collaboration and co-innovation with Fintechs, customers and developers.
Banks need to deliver frictionless, personalized, “retail banking-like” experiences over customer-centric corporate banking channels. Instead of channel silos – one for liquidity, another for payments and so on – customers will see data from all their accounts in one place, from where they can manage liquidity, forecast cash flows, secure trade finance etc. On their part, banks can use 360-degree customer insight to issue not just timely alerts but also contextual recommendations. For instance, being able to alert a customer that a large payment is due the following week, but also suggesting the best options for arranging those funds.
Apart from improving the customer journey, a real move in corporate banking is towards cloud adoption. Many banks have started the cloud journey, but many still have some distance to cover before they are fully cloud-enabled; mainly, they are migrating monolithic, on-premise workloads to the cloud. Early adopters, such as JP Morgan Chase, HSBC and Citibank, are setting the pace by developing their own capabilities as well as procuring certain components from Fintech partners to plug into their overall solution.
One size doesn’t fit all
In the past, corporate banking solutions were largely meant for big companies, but today they are relevant to enterprises of all sizes. Internet and mobile have enabled even small local firms to scale far and wide, creating a need for solutions to manage their money across borders. Therefore, banks need to make sure their liquidity solution can accommodate the different needs of different clients. Only a flexible, componentised solution can do that.
The importance of app-based commerce to hospitality in the new normal
By Jeremy Nicholds CEO, Judopay As society adapts to the rapidly changing “new normal” of working and socialising, many businesses...
The Psychology Behind a Strong Security Culture in the Financial Sector
By Javvad Malik, Security Awareness Advocate at KnowBe4 Banks and financial industries are quite literally where the money is, positioning...
How open banking can drive innovation and growth in a post-COVID world
By Billel Ridelle, CEO at Sweep Times are pretty tough for businesses right now. For SMEs in particular, a global financial...
How to use data to protect and power your business
By Dave Parker, Group Head of Data Governance, Arrow Global Employees need to access data to do their jobs. But...
How business leaders can find the right balance between human and bot when investing in AI
By Andrew White is the ANZ Country Manager of business transformation solutions provider, Signavio The digital world moves quickly. From...
Has lockdown marked the end of cash as we know it?
By James Booth, VP of Payment Partnerships EMEA, PPRO Since the start of the pandemic, businesses around the world have...
Lockdown 2.0 – Here’s how to be the best-looking person in the virtual room
By Jeff Carlson, author of The Photographer’s Guide to Luminar 4 and Take Control of Your Digital Photos suggests “the product you’re creating is...
Banks take note: Customers want to pay with points
By Len Covello, Chief Technology Officer of Engage People ‘Pay with Points’ – that is, integrating the ability to pay...
Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger
By Dr.Roger Firestien, Author of Create In a Flash. The fight, flight, freeze survival response – or FFF for short...
Why the FemTech sector might be the sustainability saviour we have been waiting for
By Kristy Chong, CEO & Founder Modibodi ® Taking single use plastics out of circulation is no easy feat, but...