By Andrew Warren, Head of BFS UK&I, Cognizant   

The last few years have shown that long-standing names in the financial services sector are facing stiff competition from newer arrivals, and as we look to the future, it seems this is only going to become an even greater challenge. With a more flexible and agile approach, as well as seamless technological integrations, digital competitors are setting a new standard for customer experience. This means that increasingly, a focus on innovation is becoming crucial for long-term success. 

On top of the threat from challenger banks, the financial services market is facing more competition from Big Tech organisations, like Amazon and Apple, which now offer their own forms of payments and loans. All this has come amid the backdrop of inflation, labour shortages, and an ever-increasing concern for sustainability. It is therefore essential that financial services companies focus on investments that are both innovative and smart if they are to survive these tumultuous times. 

The expectation of ethics: surface level promises are no longer enough

It is becoming increasingly clear that there needs to be a change in operations within the financial services industry. The widely held notion of ‘doing the right thing’ is fast underpinning the now largely ESG driven business culture. For many companies today, the main priority is to implement achievable initiatives that demonstrate a clear path to operating more sustainably. This is especially true for banks, which naturally use a lot of energy, and who therefore must be particularly in tune with aligning themselves with a broader focus on sustainability. 

However, the pressure is not just on having these initiatives in place, but on how financial institutions are embedding sustainability into their operations at a much deeper level. Building wind farms will no longer be enough and the recent comments by HSBC’s Stuart Kirk further highlight how the industry is realising this and moving its focus to show sustainability approaches are both genuine and effective.  

As part of this, financial institutions must be able to demonstrate that sustainability is a key priority, by increasing focus on their green funds. In other words, they must show that they are making positive investment decisions by, for example, choosing to invest in organisations with a clear path to sustainability. Big-name cryptos, like Ethereum, are taking steps to redress their association with environmental impact and traditional financial firms must follow suit to meet the increasing public concern about the climate crisis.  We can therefore expect to see ethical investment strategies more and more frequently, with investment managers increasingly prioritising sustainability in their proposition. However, with more scrutiny of such strategies revealing a dearth of true impact, traditional firms need to work hard to ensure they are doing more than window dressing. Single-issue fintech platforms, such as Circa 5000, for example, are proof of true commitment to a cause, ensuring its ‘ethics-first’ mission statement is reflected in its carefully curated products. 

Rather than replacing employees, automation could improve staff retention

A key weakness for many banks is their employee offerings. Throughout the pandemic banks have led the way with calls for return to office working, in contrast to other industries, like the technology sector, that have embraced a long-term hybrid approach earlier on. This is one contributing factor to the industry still having one of the highest attrition rates. The promise of more flexibility or higher salaries has meant that employees are keen to turn to non-traditional finance employers that can offer a better package. 

While labour shortages have affected many industries, the primary concern for banks is currently back-office roles. These positions typically offer little room to add value, and individuals are therefore limited in their scope to progress and upskill. Investment in automated solutions may well be the answer here. Menial tasks could be completed through automation, with banks then being able to offer more fulfilling positions alongside better employee value propositions. 

In today’s job market, with more vacancies than job seekers, the power dynamic has truly shifted, and individuals are looking for the chance to learn and upskill for lifetime employment. Like many other businesses, banks need to focus on giving employees careers – or risk losing them to a competitor that will.   

Going digital to deliver lifetime value 

One of the key pervasive issues and priorities for retail banks is matching the hyper-personalisation capabilities offered by their digital rivals, which are now key for building customer loyalty and trust, and in turn achieving long-term stability and success.   

While a few years ago, one-off new and exciting offerings were enough to win customers, if retail banks want to maintain loyalty, it’s no longer about simply offering a pretty debit card or making the sign-up process quicker, but about delivering lifetime value to customers.   

JPMorgan Chase is a great example of one of the big financial services companies successfully finding a solution to this problem. It has begun to build its European business from the ground up with digital at its core, hoovering up other companies that offer interesting propositions but cannot maintain the investment and custom momentum they need for long-term success. For example, the giant has recently acquired Nutmeg as well as a digital loyalty brand.   

It has now incorporated digital services into every aspect of the business enabling it to gain much deeper insights into customer spending habits and ensuring that all important personalisation is central to its operations. This is exactly what is required in today’s retail banking market, and others will need to implement similar strategies to keep up. 

A new identity for card providers 

Amazon’s announcement of removing Visa’s credit cards as a payment option highlighted the unpredictability of the market. Although it later backtracked on its decision, the change should have come as no surprise – Amazon’s market dominance means it is in a position to lead the way in innovative payment processes.  But the manifestation of the news came as a shock to the system for many.  The dominance of Amazon, and other key tech firms in the market, should be a key driver for other card companies to innovate their offerings. 

In order to survive, card companies need to figure out a new strategy and a new identity. The most obvious route may well be to reinvent as networks, just as Visa and Mastercard have done. These industry giants are now considered payment mechanisms, not just card companies. In contrast, American Express has taken another approach. Following in Apple Pay’s footsteps, which has always put data and insight first, it is putting data at its core to improve the understanding of its customers, with the aim to offer a more personalised experience that better reflects its individual needs. 

Continued innovation for long-term success 

There’s no doubt that current external pressures will continue to prove challenging for financial services organisations to overcome. Positive investment and innovative strategies will ensure they can face this head on and remain successful in the long-term. There’s no chance of the market calming down, and those who will handle it the best will prioritise new areas of opportunity and digital investment to keep up with the rest of the world.