By Brian Holden, Global Director of Financial Services at SAS UK & Ireland
I’ve written before about how the coronavirus pandemic is making banks reconsider the value of their high-street branches. In that article, I focused mainly on how branches could act as a decentralised workplace network, reducing the need for many staff to commute into central London and the towers of Canary Wharf.
Today, let’s look at the same topic from a customer experience perspective. What kind of branch network will banks need in the future to deliver the best service to their customers and the wider community?
Customers trust in bricks and mortar
A couple of years ago, a typical answer to that question might have been that banks won’t need branches at all. Digital banking was in the ascendancy, and established banks were becoming seriously concerned about the rise of online-only challengers. Branch networks were seen as “legacy baggage,” an expensive obstacle to digital transformation.
Today, things look very different. When people are losing their jobs, shutting down their businesses, and wondering how they’re going to pay the mortgage, they want a bank that they can visit, staffed by real people whom they can talk to.
That’s why many of the challenger banks are finding themselves in a bit of trouble. Customers are moving their money back into bricks-and-mortar institutions that they feel they can trust. When their finances are precarious, they can’t afford to be cut off from their bank account by a technical glitch. Or left with no way of contacting a human being to help them with their problems.
Serving the whole community
It’s become increasingly clear that online banking just isn’t accessible for large segments of the community. Older people, for example, often aren’t comfortable with the online world. They may not know how to use a computer or smartphone. They’ve heard horror stories about falling victim to fraudsters. And many feel it’s not worth the risk to engage with online banking at all.
There’s also a worry that when banks close branches and move out of a local community, people may be more likely to seek other sources of credit – often at much higher interest rates than high-street banks would charge. This could have a damaging impact on their financial security, particularly in the COVID era, when many people who have suffered job losses or reductions in income will find themselves struggling to service their existing debts.
If everyone has access to a local branch on their high street, many of these problems evaporate. That’s the real social benefit of banks having a physical presence in the community. As banks increasingly focus on their social responsibilities in helping the country recover from the COVID crisis, local branches will play a key role in supporting not only the affluent but those who have fallen on hard times too.
Too many banks, too little differentiation?
However, although we’ve established that branches are a social good, that doesn’t necessarily mean that every bank has to have a branch on every high street.
The vast majority of the activity that takes place in branches is simple and transactional. Customers check their balance, make withdrawals, pay in cash and cheques, make payments, and so on. All of these tasks are generic enough that the process doesn’t vary much between banks. You don’t get a noticeably different or better experience when you withdraw cash from one bank’s branch than you would at another bank’s branch, for example.
Some of the in-branch processes are slightly more complex – establishing proof of identity when opening a new bank account, for example. But even then, it’s a process that all banks need to implement at their branches. And there’s no real differentiation between banks because they all need to comply with the same Know Your Customer regulations.
Finally, there are higher-level services, such as face-to-face meetings with financial advisors to discuss pensions, mortgages or investments. These are an important differentiator for banks. But since they effectively only require a meeting room, a desk, a computer with a secure internet connection, and a couple of chairs, there’s no reason why, for example, a Banking Relationship Manager necessarily needs to meet their clients at their own brand’s branch.
The white-label branch
What am I proposing, then? Well, instead of each bank paying rent, rates, bills and salaries for different buildings on the same high street, branch banking could take inspiration from co-working spaces. We could have a “white label” concept, where a single high-street location acts as a shared service centre for all banking-related activity, regardless of which bank(s) the customer holds an account with. This would not only significantly reduce overheads for the entire retail banking industry but also reduce carbon footprints and contribute to banks’ sustainability goals.
A single location could house all the apparatus required by a traditional bank branch: a secure vault with safe deposit boxes, ATMs, a row of cashiers’ windows and so on. Staff could be trained to handle all of the day-to-day transactional business of paying in, withdrawals and even KYC checks in a standardised way and pass the information securely to each bank’s back-end systems.
Then, for the higher-level services, financial advisors from any bank could simply reserve a meeting room in the building and arrange to meet their clients there. Even today, many advisors (especially mortgage specialists) are itinerant, splitting their time between several different branches in different towns instead of having a single permanent office at a “home branch.” The white label concept would simply take things one step further, with advisors from different banks co-working flexibly in whichever branch is most convenient for the customer.
Back to the future?
Banks don’t like to publicise it, but there’s already a place on most high streets that offers everyday banking services: the Post Office. Could we go back to the days when Post Offices were one of the main locations for banking transactions, especially in smaller towns and rural areas?
It’s possible, but I think that’s the wrong route to take. The Post Office already offers a wide range of nonbanking-related services, and it could be overloaded by taking on the extra responsibility. More importantly, to be truly effective, white-label banks will need banking-specific infrastructure, systems, processes and regulatory oversight, especially in areas such as security and compliance. This all points to premises that are either converted from existing local banks or newly built for the purpose.
From vision to reality?
If this all sounds like a step too far, consider this. The rise of smartphones and mobile banking means that any reasonably tech-savvy customer can already visit a white-label branch whenever they choose – simply by taking their phone out of their pocket. They can access their accounts at any of their different banks simply by tapping on the appropriate app. Why shouldn’t the same be true on the high street?
If you would like to learn more about how SAS is helping UK banks imagine what the post-COVID future should look like, whether that’s online or in-branch, feel free to reach out to me directly or find more information here.
Open Banking: the perfect pandemic tool – Equifax comments
With COVID-19 related financial fallout set to dominate the credit landscape in 2021, Dan Weaver, Open Banking Expert at Equifax UK, believes Open Banking solutions can provide lenders clarity in a sea of uncertainty:
“With lockdown once again in place across the UK, it’s clear 2021 will be a year of extreme financial flux. While the vaccine roll-out programme will provide an economic boost and eventual easing of restrictions, forbearance measures, such as mortgage holidays and the government furlough scheme, will be wound down. This will lead to income shocks for many, and the potential for a nationwide surge in personal debt.
“With the third anniversary of its implementation today (13 January), Open Banking is entering a new mature phase of its development. The initiative’s credentials are now widely established, offering creditors the perfect pandemic tool to assess the most accurate picture of an individual’s finances.
“Consider someone who has just returned to the workforce after being made redundant or placed on furlough. Traditional credit bureau or legacy data alone would not always provide potential lenders with the most up-to-date information on their current financial circumstances and ability to repay credit at the point of application. Open Banking platforms, through customer consent, pull live data directly from the user’s bank account, allowing creditors to make an informed, responsible and fair decision about their current affordability on the most recent data available – a game-changing factor amid such widespread financial upheaval and rapid change in people’s circumstances.
“Open Banking is a tool for our times and it’s vital more credit providers, not just big banks and finance but utilities, insurance, auto and telcos companies, accelerate its adoption. Throughout our society and economy in the past year, we’ve witnessed feats of great innovation, executed at rapid speed. In 2021, we need to apply this transformational energy to the Open Banking landscape, slashing the time it takes for creditors to test protocol and fully set up their solutions.
“Three years after its arrival, we’re seeing Open Banking platforms improve digital, real-time income verification rates by more than 25% * – which is no mean feat. If an industry-wide, mass acceleration strategy was successfully achieved in 2021, it would prove extremely valuable and timely, and lead to better customer and creditor outcomes throughout the credit space.”
Over a quarter of Brits now have an account with a digital-only bank
The number of Brits with a digital-only bank account has gone up by a percentage increase of 16%
Almost 1 in 6 Brits (17%) plan to open a digital bank account over the next 5 years
The top reason for opening an account was the convenience of banking online for the third year running
However, 16% of traditional banking customers who aren’t planning to switch said their bank had been helpful during the COVID pandemic
Currently over a quarter of Brits (27%) say they have at least one bank account with a digital-only bank, according to personal finance comparison site finder.com.
This is a percentage increase of 16% from last year when 23% of Brits said they had an account with a digital bank. It is also over 3 times the amount of Brits who had one in January 2019 (9%).
Finder’s 2019 research found that 24% of Brits intended to have a digital-only account by 2024. However with 27% now having an account, Brits have gone digital 3 years earlier than expected.
A further 17% of Brits intend to join them over the next 5 years, with 11% planning to do so over the next year. This could mean that 44% of Brits could have an account with a digital bank by 2026. If this percentage were applied to the UK adult population, it would equal almost 23 million people.
The top reason for opening an account continues to be convenience that digital-only banks provide, for the third year running (26%). The second most common reason was that users needed an additional account and setting up a digital account seemed to be the easiest option (20%). Customers also wanted to transfer money more easily (19%), making this the third biggest priority.
People wanting a trendy card is still driving signups as well, with 1 in 10 (10%) existing, or future, customers citing this as a reason to get an account.
Despite the increase in digital-only banking customers, the numbers who aren’t considering one have actually risen. Last year, 23% of respondents said they aren’t considering a digital-only bank account, but this has risen substantially to 42% in the latest survey.
This is likely a result of increased customer loyalty, 58% of those without a digital bank account said they felt as though their incumbent bank had treated them well and therefore had no desire to open a digital bank account. Additionally, 16% felt as though their incumbent bank had performed particularly well during the pandemic.
Over a third (36%) of those without a digital bank account said they had not decided to bank with digital providers because they preferred to be able to speak to someone in branch.
Digital banks are still most popular with younger generations, 46% of gen Z say they currently have a digital bank account, with a further 28% intending to get one over the next 5 years. This would mean that by 2026 just under three quarters of gen Z (73%) could have a digital bank account.
To see the research in full visit: https://www.finder.com/uk/digital-banking-adoption
Commenting on the findings, Matt Boyle, banking specialist at finder.com said:
“This research shows that digital-only banks are here to stay, with the number of users in the UK rising for 3 years straight. On top of this, Starling and Revolut announced this year that they have made a profit for the first time, really demonstrating that digital banks are starting to become a serious part of the banking furniture.
“The pandemic has also played a role in the rapid digitalisation of the banking industry, with those who had never experienced online banking having no other choice but to take their finances online. It seems that Brits are starting to realise the convenience that can come with digital banking and this is reflected in our research.”
Finder commissioned Censuswide on 6 to 8 January 2021 to carry out a nationally representative survey of adults aged 18+. A total of 1,671 people were questioned throughout Great Britain, with representative quotas for gender, age and region
The Impact of the Digital Economy on the Banking and Payments Sector
By Gerhard Oosthuizen, CTO Entersekt.
New banking regulations, digital consumers, the eradication of passwords, contactless technology – these are just some of the trends that will shape financial services and payments in 2021, writes Entersekt CTO, Gerhard Oosthuizen.
Since the outbreak of COVID-19, traditional businesses have been compelled to further undergo the digital transformation to meet the needs of a consumer base largely confined to their homes. Indeed, we estimate that there has been a 30% growth in the digital space. With this acceleration towards a digital world, banking, transacting and payment trends have and will continue to be redefined into 2021.
We have witnessed a rising number of digital first timers. That is, people signing up for online banking and e-commerce, whilst progressively shifting away from traditional channels. Businesses that have previously depended on walk-in stores and having a physical presence have also had to recognise that online transactions are now the new norm, and to adjust accordingly.
Whereas in the past, registering a customer for a service could take place in a shop, a booth or a branch, today it has become more important than ever to have a remote digital registration option available as well. Even working behaviour has changed considerably, with many businesses accommodating for remote working in the long term.
This is what sets the scene for 2021 – people expect to work from home as well as carry out their transactions from home.
Banking and Payment Trends in 2021
The use of contactless technology is undeniably growing, but on top of more people tapping with their cards, we are also seeing much more engagement with QR payments. A technology already frequently employed in Asia, we know QR codes can work. It would enable consumers to authenticate themselves when making a transaction without needing a PIN pad. More importantly, it allows consumers to gain complete control of their transactions from their own device and have an overall richer experience. Recognising this, we anticipate noteworthy developments in QR and NFC-enabled tap and go payments over the next year.
In light of FIDO (Fast Identity Online) and the ever-expanding network of FIDO-compliant solutions, we also expect the emergence of entirely passwordless systems. Organisations will likely begin enlisting customers by way of biometric authentication through devices and digital identities that already exist, such as banking apps. Long gone will be the days of having to remember numerous passwords, only to forget and reset them again. That is the idea anyway.
In 2021, there will probably be a pronounced adoption of delegated authentication as well, whereby
merchants as opposed to traditional issuing banks will take the reins of authenticating e-commerce payments. In this way, consumers will be offered a greatly improved online shopping experience with a simple and intuitive checkout that acts as an extension of the retail brand.
The Challenge of PSD2
While each of these transitions will undoubtedly introduce growing pains, PSD2 will be among the most challenging. Europe is already going through PSD2 now, implementing a number of regulations that is opening up competition in banking and electronic payment services. However, on the 1st of January 2021, these regulations will take a legal effect. At the end of the first quarter, so too will another set of regulations concerning 3-D authentication of card-not-present payments. Europe is simply not prepared to make this leap into “open banking”. As such, banks will face a tough year of struggles with regulators and competition from non-traditional quarters.
In fact, the process towards becoming PSD2-compliant is often arduous for banks and recoups hardly any additional revenue. Many banks see it as a competitive disadvantage as they are being forced to open up their systems and processes for the likes of Google, Facebook, Apple and many smaller niche fintech operations. Their valuable client data risks being taken by a challenger and used to on-board their accountholders.
Regardless of the commercial opportunities that open banking may provide, fraudsters will also endeavour to take advantage of this change and the weaknesses that will appear as systems open. With money moving faster, the faster it can be stolen too. We will likely see some reaction to this in 2021 as fraud returns to being a top priority for banks. Yet, whether through regulatory pressure or by market forces, open banking will become the new normal – and the world needs to prepare for this. Hopefully, many lessons will be learned from Europe’s experiences in 2021.
Next year is going to be about change – and managing that change without alienating already unsettled consumers. Organisations that have customer experience top of mind will emerge as winners, but they must nonetheless expect additional pressure from regulators, new competition, ever more digitally-demanding consumers, and no slowdown in technological innovation.
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