‘I’m a happy Ocado customer. I have a great choice of products, I can do my shopping when I want, I like the fact that Ocado will go the extra mile to pick for me the freshest looking vegetables. Most of all, I like that they will deliver at a time that suits me. I trust Ocado.’
SopraBanking collated information from a recent Market force webinar debating how new entrants in the banking sector can compete in today’s turbulent banking landscape.
Steve Pateman, CEO of Shawbrook Bank believes traditional supermarkets misunderstood the value of people’s time and that’s where Ocado came in, truly disrupting the existing supermarket business model. From this banks, both incumbent and new entrants, can learn to link their innovation to a customer understanding so that customers receive the same level of happiness from their dealings with their bank as they do their grocer.
Innovation may well be the buzzword of the last few years, but for very good reasons. Any organization who underrates the concept, or thinks that the status quo can continue could well face a difficult future, and nowhere is that more apparent than in the banking sector.
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The sector’s recent transformation may be well documented, but that does not make it any less spectacular. New challengers and entrants are appearing every day, and radically different approaches such as P2P lending and crowdfunding, which would have seemed outlandish only a few years ago, are now set to be the new banking normal. Competing has never been more difficult, but more crucial.
That same panel discussion, which also included Jon Hall, Managing Director of Masthaven Bank and Sophie Guibard, VP of European Expansion at Fidor Bank, drew out a number of recurrent themes. Firstly, and perhaps inevitably was the ability of new entrants to provide a superior customer experience and take a lead in becoming the Ocado of Banking.
Both Hall and Guibaud think an innovative customer experience is enough to compete against something more established citing the importance of embracing fintech capabilities as a movement for change in their delivery ecosystems. This means that new entrants are much more agile and can fully take advantage of new innovations in areas such as payments, open APIs and blockchain to deliver something truly tangible to the customer – near instantaneous payments. Newer systems give newer banks the ability to create a focused new brand and add something new to the customer experience quickly.
One of the most exciting aspects of the surge of new entrants is their diversity. They can be distinctive in the segments they operate in and the customers they seek to attract. But this niche aspect has to be managed carefully if they are seeking to differentiate themselves by the way they deal with different customers’ needs and wants. Central to that discipline is to really get to grips with understanding the customer problem that needs to be solved, and to know how you intend to solve it. It can take time; Zopa the p2p lender has seen revenues double for the last 3 years, but it has taken a decade to reach this point, and stands as a great case study in marrying agility and innovation to a long term, sustainable model.
What is clear is that a bank mustn’t lose sight of what it is. A bank, not a technology company, not a software house, not an innovation incubator. All of these are important to its own sustainability but should never become the main focus. Partners become a vital part of the business model. Guibard puts it starkly, “Take all the help you can” – Work out what you are good at, and when and whom you should partner with.
But new entrants shouldn’t rest on their modern system laurels. The brutal truth is that incumbent banks have done a great job of keeping up with digital, despite the patchwork of mainframe databases, bespoke applications, and third party external packages in place, all kept in check with some middleware. And, it has to; as jettisoning it all and starting over is simply too expensive and disruptive.
Ultimately, the same truths hold for any type of bank in the modern landscape. Whether the starting point is legacy or brand new, think incremental change, not Big Bang! They should implement a promising technology in a small way, modify it and extend it using agile techniques for rapid iteration.
Exploit the Cloud to its limit, using its inherent flexibility to pilot good ideas to see if they work and expanding on them where they look helpful. If you haven’t got a digital front end, build one as quickly as you can as the business case for that is a no-brainer, cutting customer service cost by encouraging self-service being the biggest payback.
These are all things good bank IT departments can and should be doing now. And it will help. Keep iterating and moving forward at the pace that suits your business – but do keep moving forward.