Rupert Naylor – Senior Vice President, Europe – Applied Predictive Technologies (APT)
2017 will mark a clear shift towards customer-centric banking. Banks are focused on improving existing customer relationships, breathing new life into branches, and pushing omnichannel strategies to the next level. Innovation and differentiation will be crucial for financial services organisations in the coming year, as evidenced by the top 5 trends in the industry:
- Succeed within and across all channels
User-friendly digital channels are now table stakes for banks, especially as millennials comprise a larger share of the overall banking market than ever. In 2017, leading banks will look to move to the next level: creating seamless experiences across all channels, for all customer segments, so that the appropriate levels and types of service can always be provided.
For example, banks need to understand the customer journey for each type of transaction and how it varies by customer segment. Are tech-savvy millennials still more likely to take out a loan if they can speak to a branch manager in person? Will more tenured customers stay with the bank even when they are steered away from a teller’s window and towards a digital kiosk? How will cross-sell be affected by shifting product offers to the mobile app as the primary communication channel? Answering these questions will be critical to shaping a seamless omnichannel strategy for banks.
Executives also need to understand how channel migration drives key metrics, including customer acquisition, retention, and overall relationship value. For instance, migrating customers to mobile banking could reduce costs from in-branch visits, but hurt the profitability of certain customer segments that value in-person interaction. Banks need to quickly identify these customers and understand which outreach tactics work best to limit possible attrition. The seemingly infinite combinations of product offerings, channels, frequencies, and outreach tactics provide an important opportunity for banks to test out different strategies so that they can hone in on the optimal communication strategy for each customer. Banks that can do this effectively will be the biggest winners in 2017 and beyond.
- Take a Surgical Approach to Branch Closures
Most major banks in the UK are aggressively reducing their branch networks. RBS, for example, has closed 380 branches in the last two years, and Lloyds made waves by announcing plans to close 200 more locations by the end of 2017. Branches used to be ubiquitous by necessity, but with the shift to alternate channels, branch coverage needs are evolving.
Network consolidation has been a common industry theme for years now. Banks have already picked off the low-hanging fruit and closed their worst performers. Now, they must close branches with unprecedented precision. A recent survey showed that 52% of UK customers still use the branch once a month, a higher figure than was reported five years ago. With each closure, banks risk losing valuable customer relationships.
There are two key steps to take when closing branches. First, executives must choose branches that will have the highest percentage of transactions and new sales transferred to the surrounding network or digital channels. From our experience working with retail banks, we have found that sales transfers from closed branches typically range from 35% to 75%. Banks often focus primarily on attrition, but the level of new sales transfer is actually the biggest driver of success that executives need to understand before closing any branch.
Secondly, the bank must identify customer segments that are at the highest risk of attrition in the event of their branch closing. We have seen that 10 to 20 percent of customers are typically responsible for 80 to 90 percent of post-closure losses. We find that banks are not always aggressive enough in targeting customers with outreach when their branch closes, and focusing on this smaller set of high risk customers can make additional outreach more feasible and more effective.
- Invest in the Branch’s New Purpose
Leading banks are quickly carving out a new role for the branch as a center for advice and relationship management. Many organisations are realising massive cost savings from closures and reinvesting this capital into the rest of the network to support this new direction. For example, TSB recently closed 25 branches and is pouring £250M into branch upgrades. These investments range from self-serve tablets and video conferencing capabilities to entire layout redesigns designed to facilitate high-value conversations.
Before making these significant investments, executives need to determine which new elements will strengthen relationships and facilitate incremental sales, and which are merely flashy. While self-service technology can free up staffing resources, banks must recognise that most customers expect a personalised experience when they enter the branch. It might not be cost-effective to replace tellers with self-serve kiosks at all branches; instead, there may be higher ROI from training existing staff to focus on cross-sell and investing in technology that facilitates those conversations. By testing different branch investments in a subset of the network, banks can make confident go-forward decisions on a branch-by-branch basis.
- Become more creative to win & expand banking relationships
The marketplace for traditional banking products is increasingly crowded, and growing market share is more challenging than ever. In 2017, banks will focus on winning and expanding their client relationships through increasingly unique incentives and services.
Financial services organisations can pull numerous levers to increase the size, depth, and retention of customer relationships, including staff training, monetary incentives, and premium services. As customers have become more accustomed to standard cash offers, banks are also becoming more creative in how they attract and retain customers. For example, First Direct provides premium customers with a UK-based call center available 24/7, and they even offer £100 to customers that leave the bank to demonstrate confidence in their services. Other organisations are similarly trying to attract and retain customers by increasing account owner freedom and choice. Virgin Money, for instance, allows savings account holders to choose between monthly or annual interest depending on their expected withdrawal schedule, while Nationwide Building Society provides savings customers with access to a 25% Government Bonus when purchasing their first home. Each of these strategies require significant investment – it is crucial for banks to test different variations of these strategies on a small scale to understand which investments truly drive incremental increases in relationship size and retention.
- Bring private banking into 2017
Wealth management groups have traditionally focused on relationships and personal attention, and therefore have not always been on the cutting edge of new technology. However, the emergence of new Fintech disruptors and increasing reliance on mobile channels is driving industry-wide innovation. For example, MoneyFarm recently launched the UK’s first wealth management app. The easily accessible investment platform is entirely fee and commission free for the first £10,000 invested, opening up wealth management services to a broader audience than ever before. The key for established players is to find the right balance of maintaining their competitive advantage with strong personal relationships while still realising the benefits provided by automated digital tools.
UBS recently launched SmartWealth, a “robo-advisor” platform that provides automated advice to investors based on goals, means, and risk tolerance. This product lowers the UBS wealth management threshold from a minimum of £2 million to just £15,000. While these types of offerings may not be large revenue generators immediately, they can establish early relationships with younger customers that can grow into higher value relationships over time.
Private banking groups are following the lead of retail banks and increasingly relying on targeted omnichannel communication. Growing adoption of mobile and online channels by premiere clients is enabling advanced wealth management groups to send the right messages to the right individuals at the right times. Emirates NBD, for example, is investing USD136 million in a new private banking digitisation initiative meant to drive mobile engagement and strengthen customer relationships. At the same time, executives must consider the risk of ‘communication fatigue,’ the tipping point in which too much outreach causes customers to tune out. By testing different types and frequencies of communication, sophisticated organisations can hone in on optimal touchpoints for each client.
Rupert Naylor – Senior Vice President, Europe
Applied Predictive Technologies (APT) – A Mastercard Company
Rupert Naylor, Senior Vice President, is in charge of the European operations of APT.
Prior to joining APT, Mr. Naylor spent many years at Bain & Company, working in London, Mumbai, Paris and San Francisco. In his early career, he spent several years in Japan working in banking for Merrill Lynch and in telecoms. Mr. Naylor started his career in the UK Government, including a posting at the Embassy in Tokyo.
Mr. Naylor was educated at Oxford and is a Sloan Fellow from London Business School.
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.
Protecting the digitally-excluded: biometric identification ensures access to payments in a cashless world
By Vince Graziani, CEO, IDEX Biometrics ASA
The events of this year have exacerbated a number of challenges for vulnerable members of our society. Fears over health have been compounded by the accelerated digitisation of activities in their daily lives, such as video calls with family, shopping online and mobile banking – activities they may have already been daunted by. Chief among these evolutions has been the pronounced lean away from the use of cash. With many not comfortable with the complexity and security of digital payments, banks must explore an alternative in the form of biometric identification.
COVID-19 and subsequent lockdown restrictions have not only made the handling of cash difficult, but even unsanitary. As a result, many retailers have either stated their preference for digital payments, or indeed forbidden the use of cash during transactions. As a result, the UK cash machine network, Link has reported a 55% drop in ATM usage over the course of 2020.
Meanwhile, in the US, a similar decline in cash has led to a rapid rise in digital payments and mobile payment apps, thanks to comparable regulations and an increase to the contact less payment limit of up to $250. According to recent research, 28% of US shoppers would avoid a retailer that doesn’t offer contactless payment options. That hesitation is causing a shift to digital payments, with the US mobile payment market expected to rise to $130.3 billion in 2020.
When the adoption of technology is accelerated so suddenly, it’s understandable that those vulnerable, older or even just reluctant and sceptical members of society aren’t thought about enough. The resultant fear of leaving vast swathes of people behind means we need a new touch-free payment solution that helps to comfortably and securely bridge their transition away from cash.
Who fears the transition, and why?
The idea of digital exclusion isn’t necessarily a new concern. In the UK, Which? has long been calling on the government to protect cash as a payment option, knowing that its eradication could negatively affect vulnerable members of our society.
Despite the concept of going cashless advancing, as many as 27% of UK consumers still operate only in cash, while across the Atlantic, 70% of US citizens regularly use cash. Looking globaly, research by the Global Index has explored the nascency of countries including India, Mexico, Nigeria and Pakistan in transitioning from cash to a digital banking system, finding that 1.7 billion adults around the world lack a bank account, while around 1 billion still pay their bills in cash.
Across the board, there is also a notable percentage of consumers who, while being banked, may struggle to maintain their financial independence. Old age or physical and mental health limitations can make the current transition difficult.
What if you can’t remember your PIN or your online banking password, or even your signature?
Banks must be aware that a wholesale veer away from cash isn’t going to suit or benefit all of their customers. They must therefore seek alternative options that still adhere to the trajectory towards touch-free payments, while addressing the above digital exclusion challenges that some will face during this transition.
A secure and convenient payment option
Rather than making payment transactions a game of memory or self-controlled security, the banking sector should look towards the benefits of biometric authentication. When incorporated into a bank card, fingerprint authentication offsets the need to put people under pressure to note down, secure, remember and then input various passwords, PINS or usernames. Instead, biometric authentication, through fingerprints, automatically and categorically links a person to their finances in the most understandable and seamless way possible.
For retailers it would ensure that the evolution away from cash can continue seamlessly; also meaning they’re less likely to lose out on an entire segment of the customer base. But, more importantly, for consumers, it provides a more safe, secure, immediate and convenient payment method that balances the positives between cash and digital payments.
It’s an ideal balance that relieves pressure on the digitally excluded. Vulnerable members of society will firstly be spared from a growing need to invest in expensive smartphones, or to learn complex digital banking features in order to carry out purchases.
Additionally, at a time where cash is potentially harmful to health, and equally at risk from a security perspective in the longer-term, they are able to make a safe step forward without any of the innovation headaches that might come with it.
The enrolment of biometric payment cards can even now take place remotely in people’s homes, making the transition even more seamless than the idea of extracting cash from ATMs.
Going beyond payments, biometric smart card solutions can also serve as the direct and unequivocal identification many would need to open a bank account, build credit and enhance their financial footprint, as seen in India’s Aadhaar biometric ID programme.
The solution to a prolific challenge
As we move away from cash and towards a world of digital payments, biometric payment cards provide the ideal balance of security, convenience and hygiene for touch-free transactions, without having to rely on expensive smartphones, mobile banking, or PINs.
Banks and payment providers must now embrace biometric payment cards to provide consumers with a secure and easily accessible means of touch-free payment. In doing so, financial exclusion will be one less critical factor to worry about as we transition to a cashless society.
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