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.
Bank of Ireland limits 2020 loss with strong second half, shares rise
By Padraic Halpin
DUBLIN (Reuters) – Bank of Ireland limited its underlying 2020 loss to 374 million euros ($452 million) after a return to profitability in the second half, the bank said on Monday, sending its shares more than 5% higher.
Ireland’s largest bank by assets also announced the closure of one-third of its branches in Ireland, 10 days after NatWest said it would wind down its Irish arm Ulster Bank.
The bank set aside 1.1 billion euros to cover possible loan defaults due to COVID-19 disruption, the bottom of its forecast range and which it expects to capture the majority of credit impairment risk associated with the pandemic.
An underlying 295 million euros second half profit limited the damage as lending and business income improved, trends Chief Financial Officer Myles O’Grady said continued into 2021, even though Ireland was in a long lockdown again.
“It’s clear that there is some impact from this lockdown but the signals overall are encouraging. We do think (the second half) will be a return to a more normalised level of activity,” O’Grady told Reuters.
Shares in the bank were 5.1% higher at 3.6 euros by 0910 GMT.
The bank cut it costs by 4% year on year in 2020, meaning it achieved its 1.7 billion euro annual cost target one year early. It set a new goal of cutting costs further to 1.5 billion euros by 2023.
That will partly be achieved by branch closures, with its Irish network cut to 169 from 257 from September and Northern Irish presence more than halved to 13. It struck a deal with the Irish post office to offer customers access to banking services at An Post locations.
The head of Ireland’s Finance Services Union described the announcement of closures in the middle of a pandemic as a “shameful act” that needed to be reversed.
Bank of Ireland’s core Tier 1 capital ratio, a key measure of financial strength, stood at 13.4% versus 13.5% at the end of September. The bank said it expected capital to remain broadly in line with those levels in 2021.
The bank’s guidance for this year should support the restart of distributions to shareholders in relation to full-year 2021 results, Chief Executive Francesca McDonagh said, adding that future distributions will likely include share buybacks.
($1 = 0.8272 euros)
(Reporting by Padraic Halpin; Editing by Edmund Blair)
Functions and Features of Offshore Banks to Know About
By Luigi Wewege, Senior Vice President, and Head of Private Banking of Belize based Caye International Bank
Have you been mulling over the idea of establishing an offshore checking or savings account? Maybe the idea of having an investment account with an offshore bank has been on your mind. If so, now is the time to explore these options more fully.
You’ll find that the features and functions of offshore banks have quite a bit to offer. Here are just a few examples to keep in mind.
Account Types That Are Familiar Plus More
One of the first things you’ll notice is that all of the domestic account types you’re familiar with are also available internationally. Along with those, you’ll find accounts that have some features that aren’t found at home. Some of them will help you grow your accounts or save money faster.
From time deposit accounts to special retirement funds, there’s something for just about everyone. Bank officials are happy to explain how each account type works and what it can do for you.
Competitive Interest Rates
Depending on how much you can deposit into an account, the interest rate that applies can be higher than what you receive at home. This is especially true if you opt for accounts that come with tiered interest rates. As you exceed and maintain certain balance levels, it’s possible to lock in higher interest rates.
Think of what this could mean if the plan is to save money for your retirement years. As you add to the balances and let them remain in the account, more interest is earned. Start that when you still have at least a couple of decades left to work full time, and the result could be a significant nest egg to use during those retirement years.
Easy Online Management
The days when managing offshore accounts required the post or some other slower method are gone. The best offshore banks provide online management to their clients. That means you can transfer funds between accounts with ease.
Think of how nice it would be to initiate a funds transfer that moves money from a domestic account to an international one. This can be done any time of the day or night. You will know when it posts to the account, often on the next business day. How much simpler could it be to get money in those accounts?
With the Best in Security Measures
Security is a priority with offshore banks. Data is encrypted correctly, account access is monitored, and there are plenty of safeguards in place. Other than authorized bank personnel and yourself, no one is getting into your accounts.
Top offshore banks evaluate and update security measures regularly. This makes it possible to remain ahead of the most recently launched threats and prevent hackers from accessing your funds.
Protection From Political and Market Upheavals
It’s no secret that political shifts and marketing changes impact the financial world. One way you can minimize the effect on your wealth is to house part of it in offshore accounts. Whatever is happening at home will not impact the funds you have placed in offshore accounts.
No matter what happens to your domestic assets, your offshore funds and holdings remain intact. Regardless of the losses you might incur at home, you’ll still have your offshore balances to help you get back on your feet.
Safeguard Against Legal Troubles at Home
No one is immune from being the defendant in a lawsuit. It could be a personal injury suit or a civil action against you. It could even be problems with a tax agency that leads to seizing your bank accounts or garnishing your wages. While it would be impossible to protect your domestic assets from these types of issues, your offshore assets are different.
In most instances, a judgment in a civil suit or a tax garnishment will not result in the seizure of any of your offshore accounts. They remain outside the jurisdiction of a domestic court.
A Wider Range of Investment Opportunities
Setting up accounts in the right offshore location allows you to take advantage of many investment opportunities that aren’t available at home. It’s not just the possibility of greater returns that captures your interest. The options themselves are broader than what you can access using any domestic banking or investment firm.
From real estate to currency trading, some options are likely to be of interest. Many of them can be managed through one or more arms of your international bank. Since many offshore banks have personnel who can provide information about investment opportunities, it’s easy to access factual data to help you decide if a particular investment fits in with your overall financial goals.
Possibly Superior Rates of Exchange When You Travel
Here’s something to consider if you tend to travel abroad regularly. When it comes to the exchange rate between different currencies, using your offshore checking account balance rather than a domestic one may be a better choice. That’s because there may be a more favorable exchange rate between your offshore account and the nation where you’re visiting.
A better exchange rate increases your buying power and lessens the overall cost of your trip. You’ll spend less on big-ticket items like hotels, air or rail travel, and meals.
Benefit from Opening an Offshore Bank Account
You don’t have to be rich to establish and grow offshore bank accounts. You’ll find banks that allow you to open an account with relatively modest balances and add to them with ease.
Over time, these balances help you achieve greater financial stability and ensure a more secure future.
This is a Sponsored Feature
Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank, a FinTech School Instructor and the published author of The Digital Banking Revolution – now in its third edition.
You can follow his posts on trends shaping the banking and financial services industry on Twitter: @luigiwewege
Banks in EU to publish world’s first ‘green’ yardstick from next year
By Huw Jones
LONDON (Reuters) – Banks in the European Union would have to publish a groundbreaking “green asset ratio” (GAR) as a core measure of their climate-friendly business activities from next year, the EU’s banking watchdog proposed on Monday.
As the trend in sustainable investing gathers pace, regulators want investors to get more reliable information on a bank’s exposures to climate change as storms and other weather events affect the value of their assets and liabilities.
The European Banking Authority (EBA) said the ratio, put out to formal public consultation on Monday, will measure the amount of climate-friendly loans, advances and debt securities compared to total assets on a lender’s balance sheet to reach a percent figure.
“I believe it’s the first time regulators are asking for a green asset ratio,” said Piers Haben, EBA’s director of banking, markets, innovation and consumers.
“The numbers may well be single digit for banks at first and that’s why context will be important. When a bank talks about where it wants to be in 2030, that is going to be really interesting on the green asset ratio.”
The new EU “taxonomy” would be used to define which assetsare environmentally sustainable.
EBA said that many stakeholders have a legitimate interest in the physical and transition risks that banks are exposed to from climate change.
Banks are likely to face pressure from investors to show what steps they are taking to increase their GAR over time, though few lenders are expected to reach 100%.
The watchdog was responding to a request from the EU’sexecutive European Commission on how to implement upcomingrequirements on climate-related disclosures by banks.
The GAR would published in a bank’s annual report, starting from 2022 based on data up to Dec. 31, 2021.
Banks will also have to publish three other indicators showing the extent to which fees from advisory services, major trading operations and off-balance sheet exposures are derived from climate-friendly activities.
(Reporting by Huw Jones; Editing by Ana Nicolaci da Costa)
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