By Mohamed Anis, AVP & Head of Sales and Client Services, Infosys Financial Services and Insurance (FSI) Europe
For banks, keeping pace with rapidly evolving customer expectations is not easy. Today’s digitally connected customers are demanding and expect their banks to be available 24 hours a day via Twitter, websites and mobile apps. This was reflected in our recent global survey which showed that 60 per cent of respondents want account and transaction information communicated via mobile alerts and 48 percent want valuable updates and insights provided through social media, email and events1. However, in this competitive banking environment, is synchronising mobile comms with online channels enough? The simple answer is no.
While many banks are comfortable with multichannel customer communications, the ‘innovations’ they’re creating – applications, websites, re-engineered call centers – are essentially extensions of what branches have been doing for hundreds of years. To drive long-term success, and attract and keep customers, banks need to embrace next-generation multichannel and this requires a fundamental rethink.
What, then, constitutes a fundamental re-think?
This is easier said than done, and before they begin, banks have to understand exactly what a fundamental re-think is. Firstly, a rethink should revolve around the two dimensions: rebuilding trust and customer centricity. Trust was, is and always will be essential to banks. With 77 per cent of consumers in the UK saying they would consider changing banks if one offered assurances that their data and money would be safer in their systems, trust and security cannot be taken lightly. However, banks need to understand that a customer’s trust is no longer limited to “I trust my bank to safeguard my money”. Instead, it has evolved into “I trust my bank to”:
- Give honest and impartial advice
- Help me (save or build wealth) to achieve my dreams,
- Understand where I am and give me financial solutions that apply to me at that point in time
- Help me in times of emergency
- Give me a holistic experience and not just push their products on me
In short, multichannel banking needs to move on from “managing money” to enabling banks to “become a part of the customer’s life journey”.
Key steps on the path to rebuilding trust and customer centricity
To make this leap to next-generation multichannel from a customer perspective, banks must first unify all channels into one. This means enabling customers to do everything over a single channel or, if required, move seamlessly between channels to accomplish their objectives. Moreover, all channel-based interactions need to be rich, relevant and timely, thereby establishing in customers a deep belief that the bank is working on their behalf to deliver the best value.
When it comes to technology, banks need to adopt a ‘bottom-up’ view. We have seen banks jump on the “let’s get a great app out” bandwagon without also thinking about how it will impact their core banking systems. Banks must first “strengthen their core” by cashing in on their most critical asset – data. To do this, they need to follow a discover-to-decision lifecycle involving the real-time discovery and aggregation of data from a variety of channels, such as social media, documents and staff, analyses to rapidly gain insights, visualisation of available options and operationalisation of decisions. This lifecycle can help banks take insight-based decision-making not just into the introduction of relevant new apps but also when entering new markets, monetising data and managing data for the long-term.
In addition, banks need to streamline their “middle”, which means transforming the typically large number of complex processes to make them simpler, configurable and more relevant to the customer. Different processes should be carefully grouped to administer a combination of everyday banking, advisory and innovative services, thereby providing the customer with a holistic experience.
Lastly, banks should look at how employees need to be educated to support this rethink. Banks need to drive customer-centric behavior among their employees. They can use tangible initiatives, such as developing a “Net Promoter Score” or NPS, to measure employee progress and enable banks to recognise and celebrate customer champions. It’s only by getting employees onboard to put this rethink into action that it can have a long lasting impact on customers and the brand.
Building processes into the business
Banks should look to unify all of these approaches with the creation of an integrated, end-to-end infrastructure platform that harnesses the latest technologies to enable digital commerce. Besides being configurable, scalable, modular and cloud-based, the platform needs to leverage big data analytics, data management and multichannel capabilities to offer the bank a single, comprehensive view of the customer and provide the insights required to deliver targeted innovations at customers.
Furthermore, for the long term success of next generation multichannel banks should look to invest in and build an executional ecosystem. This involves using its infrastructure platform to create a digital ecosystem consisting of social channels, such as Twitter and Facebook, payments hubs such as Google and Amazon, business partners such as governments, merchants and utilities, as well as content delivery tools. These ecosystems not only allow banks to streamline their interactions with partners and suppliers but also drive collaboration and innovation such as new customer offerings.
Take your multichannel journey forward, without leaving your customers behind
While all customers expect a good service from their bank, they still like to feel like they’re calling the shots. So, while implementing next-generation strategies will build closer and more profitable relationships in the long-run, banks need ensure their customers feel they’re on the same journey as the bank. For example, it is not always a good idea to move all customers from branches banking just because the other channels, such as online, are cheaper. Our survey showed that 87 percent of customers still indicate a preference to share their personal details face-to-face, rather than through digital channels – to force them onto an online channel may only push them to choose another bank. It’s only by taking a new, yet unified approach to their customer communications, IT infrastructure and employee engagement, that banks can truly establish a ‘next generation’ multichannel strategy, and reap the benefits it has to offer.
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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