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.
How open banking can drive innovation and growth in a post-COVID world
By Billel Ridelle, CEO at Sweep
Times are pretty tough for businesses right now. For SMEs in particular, a global financial and health crisis of the sort we’re currently witnessing represents a truly existential risk. Yet there is hope of a brighter future. Digital transformation is already helping organisations in countless sectors, with everything from building supply chain resilience to rolling out potentially life-saving contact-tracing schemes. Yet it’s not just delivering transformative benefits in grand projects like this.
Thanks to open banking rules, a new wave of fintech innovation is sweeping the globe, offering business leaders a new launchpad for success. Even something as simple as corporate expenses can be transformed by the power of open data — to help firms cut costs, reduce fraud risk and become more productive.
Opening up data to innovation
It’s easy to get bogged down in the technical details of open banking, and the slew of new acronyms it has ushered in: Third Party Providers (TPPs), Account Information Service Providers (AISPs), Payment Initiation Service Providers (PISPs), and Application Programming Interfaces (APIs). Yet at the heart of the open banking revolution is a simple concept: the idea that forcing banks to open up their customers’ financial data will create more competition, and fresh opportunities for market entrants to create innovative new services.
This was at the heart of the UK government’s world-leading strategy when it was introduced back in 2016. A revised EU payment services directive (PSD2) gave it legal teeth, mandating that all payment account providers in the region provide third-party access for customers that want it. The push is also about reducing banking fees and enhancing financial inclusion, of course, but it’s in competition and innovation that the benefits really shine for businesses.
Access to real-time financial data via open APIs has already resulted in a range of new services which are helping businesses ride out the current economic storm. Whether it’s capabilities that can help freelancers prove loss of income to receive targeted loans, or services designed to streamline business processes to reduce costs and fraud — examples of innovation are endless.
What’s more, it’s already global. Aside from the PSD2, open banking rules are taking shape in Australia, New Zealand, Japan, Singapore, Hong Kong, Mexico and elsewhere. According to frequently cited Gartner predictions, regulators in around half of the G20 countries will create an open banking API regime over the coming year.
In the UK alone this is set to create a £7.2 billion revenue opportunity by 2022, with 71% of SMBs and 64% of adults expected to adopt it by then, according to PwC.
Making expenses pay
Corporate expenses and travel management might not be an area one immediately associates with high levels of innovation. But here too, open banking is having a profound impact. By combining automation, in-app approvals, integration with corporate policy and secure open banking APIs, companies like Sweep are offering new ways to solve old problems.
Part of the legacy challenge relates to productivity. Managing corporate travel costs and expenses was cited last year as the biggest concern of the UK’s small and mid-sized firms. Separate research claimed that SMBs are estimated to lose over £8.7 billion annually due to the time it takes employees and managers to complete these menial tasks. By automatically integrating real-time corporate bank account information into an easy-to-use app, we can save up to 15 hours a month on data input and travel administration per employee. That’s all time they could be spending on growing the business.
Another key area of concern is fraud. According to some estimates, fraudulent expenses claims could be costing UK firms £1.9 billion each year. In the US, the figure could be approaching $3 billion annually. Whether it’s the result of submitting expense claims for personal purchases, claiming for additional mileage on work trips, or over-claiming for other items, it all adds up. What’s more, fraud tends to spike particularly during times of recession, when normally diligent employees look for ways to supplement their income.
In this use case too, there are benefits to be had from open banking-powered solutions. Traditional manual processes offer too many gaps that can be exploited by fraudsters. Submitting paper receipts to finance departments — which must then input the information into spreadsheets or accounting software — is slow, error-prone and lacks accountability. However, with modern digital systems, transactions are automatically fed through from bank account to expense management platform. Here they are seamlessly checked according to policy and automatically approved, rejected or flagged for further investigation.
The future’s open
Thanks to the power of open banking, innovative fintech use cases like this are transforming operational challenges into opportunities to cut costs and fraud risks, improve employee productivity and become more strategic. With real-time data fed through from corporate bank accounts, finance directors can better understand spending patterns, react with greater agility and gain the insight they need to run their businesses more efficiently.
So what of the future? The good news is that open banking is only just getting started. As more sophisticated machine learning algorithms are developed, it has the potential for even greater disruption by empowering SMEs with predictive analytics and forecasting tools, or more accurate fraud checks, for example. Those in Europe may benefit most as PSD2 allows businesses to use tools that work seamlessly and securely across markets, without requiring any duplication of work.
In fact, open banking is not just good for individual SMEs, it’s important for Europe as a whole if we are ever to nurture successful digital unicorns to compete with those coming out of the US and China.
Open banking been described in the past as a quiet revolution. With the right buy-in from business and the continued innovation of digital platforms, it may soon become a full-throated roar.
Banks take note: Customers want to pay with points
By Len Covello, Chief Technology Officer of Engage People
‘Pay with Points’ – that is, integrating the ability to pay with loyalty reward points directly into the online check-out process – is a trend that is growing exponentially with big-name brands like Amazon, PayPal and American Express leading the way.
The past few months have posed an unprecedented challenge in the loyalty space, especially with the pandemic’s impact on travel. The unforeseen impacts across the board have caused institutions with premier incentive credit cards to feel increased pressure to retain their loyalty members. As such, exploring innovative ways to create a personalized loyalty experience for customers is at the forefront now more than ever.
Offering the flexibility to pay with points is certainly one option that can help transform financial institutions’ (FIs) loyalty programs. With the evolution of consumer preferences – like relying on other forms of payment outside of credit and the move towards contactless payments – viewing points as currency naturally ties into the “new ways” in which American consumers bank, pay and shop.
Personalization is a win-win for banks and loyalty program members
As the world continues to evolve in light of the pandemic, consumer habits like mobile banking and shopping online for groceries are likely to carry over long-term. As a result, consumers will expect their loyalty programs to provide new incentives to fit their ever-changing needs. By offering loyalty program members the ability to pay with points for the items they want or need during the online check-out process, FIs are creating a more personalized shopping experience. This can help increase member retention, especially compared to dated loyalty programs that offer limited options for point redemption.
As we’ve learned with iPhones, tap to pay and other technologies that reduce friction, once consumers begin using a new and convenient digital service, there’s little desire to go back to the old way of doing things. By incorporating pay with points into loyalty programs sooner rather than later, FIs will be setting themselves apart in terms of meeting their member’s needs with modern payment offerings.
Outside of providing a personalized experience to loyalty program members, pay with points as a program perk also has specific benefits when it comes to a bank’s bottom line. Currently, there are billions of dollars in liabilities in the form of unused points sitting on banks balance sheets. This is in part due to loyalty program members inability to spend their points how they want. By allowing a more personal and flexible way to spend points, banks can reduce those liabilities while creating a more engaging experience for their members.
Meeting consumer demand is easier than you think
Incorporating the infrastructure to power new digital capabilities is more often than not a cause for concern: how expensive will it be? What does down time look like? How long will it take to get up and running?
Luckily for banks, the process is actually quite simple – and inexpensive. With a lightweight integration of a few APIs, banks can tap into a pool of retailers to make their merchandise available for purchase with points by loyalty program members in no time. And as the retail network expands, there’s no need for additional IT work to add new brands into the fold. Ultimately, API integrations upfront create a frictionless and scalable solution for FIs and a preferred shopping experience for members. And based on market feedback, the personalized experience that results from giving customers the option to spend points as easily as they would cash or card, far exceeds any initial inconveniences that may arise.
According to our recent Customer Loyalty Survey, 75% of customers are more likely to spend loyalty reward points to make a purchase over other payment methods. The findings also indicated that 72% of customers are actively engaged in loyalty programs because of the available redemption options.
Long-term loyalty is not just about acquisition or promotional material, but rather the experience of redemption and viewing loyalty points through a fresh lens. Customers today are well-versed in what’s available to them online. The more redemption options offered to the consumer, the more appealing the FI becomes.
Loyalty point redemption in action
In April of 2020, when the world was mostly in lockdown, we looked at how a select group of approximately 3,000 consumers spent their loyalty reward points, comparing April 2020 to April 2019. Key findings suggest that, if given the opportunity, consumers will spend their loyalty points to buy what they want or need based on their specific circumstances. For example:
- Significant increases in the purchase of outdoor items like BBQs and smokers (+3401%), fire pits and heaters (+2644%) and pool and patio accessories (+1297%) suggested people were making the most of the spaces around them.
- Consumers were focusing on their personal health and well-being with the increase in points spent on fitness accessories (+1664%), bike accessories (+1453%) and fitness trackers (+536%).
- Finally, the increase in purchases of hand-held power tools (+3076%), smart control lighting (+1750%), stick vacuums (+1096%) and specialty small appliances (+531%) suggests consumers took advantage of the opportunity to check projects off their at-home to-do lists.
We’re keeping a close eye on how loyalty point purchases evolve as more retailers and FIs get on board with viewing points as a true form of currency, especially in a post-pandemic world. Which items will rise to the top in the coming months and years as the payments ecosystem evolves? Will flight purchases or experience-based purchases regain popularity?
What’s next in the loyalty payments space?
As consumers continue to look for alternative payment methods, offering the flexibility to pay with points is the perfect opportunity for FIs looking to reinvent their loyalty programs. Engage People has always viewed loyalty points as a fiat currency, creating innovative technology that allows for easy integration that satisfies loyalty program members’ needs.
In the future, there’s a real opportunity to incorporate loyalty reward points into everyday life – extending beyond the online shopping experience. Imagine a world where you can pay for coffee, your bills, monthly subscription services like Netflix or make charitable donations with loyalty points just as you would with a credit card or cash. The future involves a mindset shift by consumers, financial institutions and the entire payments ecosystem, and that shift is viewing loyalty points as a true form of currency. Like reaching for cash, a debit or credit card, loyalty points can easily become a payment option of choice for consumers. FIs that are at the forefront of this trend now have the most to gain long term.
The Importance of Liquidity Solutions
By Justin Silsbury, Lead – Product Manager at Infosys Finacle
Economic uncertainty and business complexity have made a deep impact on corporate treasury management in recent years. With regulations getting tougher, funding becoming elusive, and profits shrinking fast, the way liquidity is managed is making a real difference to companies’ survival. As corporate treasurers around the world struggle with the challenges of liquidity management, they are turning to their banks for support; it is imperative that the industry respond with digital solutions that enable clients to manage money efficiently at low cost.
Why corporates need liquidity solutions
Corporate banking customers need a liquidity structure that maximises security, liquidity and yield. Even today, treasurers in multinational corporations lack visibility into their companies’ overall cash position across countries and currencies. Delivering returns on excess cash, although important, is not a priority for them, but making sure the money is safe and available when needed, is. Therefore, a liquidity solution should be able to consolidate a company’s cash position across all its accounts around the world, provide a unified view in real-time, as well as offer timely suggestions on maximising utilisation and yield. It should automate all these functions as far as possible to reduce both manual overheads and the risk of moving money manually on a daily basis.
Broadly, liquidity solutions are of three types – cash concentration solutions that automatically move money around the world; interest optimization solutions that reward customers based on their aggregated balances without the need to move any money; and investment sweeps that move all the consolidated funds to a money market fund or other short-term investment to earn extra returns.
And why banks should provide them
There are several reasons why banks should invest in a sound liquidity solution. The most important one is that without it, a bank can never become a customer’s principal financial institution. A large corporation will have many banking providers, each one trying to increase share of wallet; in this situation, a high involvement product such as a liquidity solution is particularly effective for building stickiness and strengthening a bank’s position vis-à-vis others. An illustration may be useful here: say a food retail chain banks with Santander in the U.K., and other banks across Europe. If the retailer chooses to consolidate its cash daily into its U.K. account using Santander’s liquidity management solution, where the excess cash can then be swept into an investment vehicle overnight, over time, Santander can cross-sell other products to the client to increase revenue and stickiness.
Technology does it
Corporate banking has historically lagged retail banking in technology adoption. It is high time that banks remedied this by digitizing their corporate solutions. Specifically, they can leverage a variety of digital technologies to provide clients instant access to liquidity, global visibility into the overall cash position, and efficient working capital management. With robotic process automation and machine learning, they can simplify and automate processes to cut cost and lead-time. Blockchain enables banks to offer fast, secure, cross-border transactions, while open APIs ease collaboration and co-innovation with Fintechs, customers and developers.
Banks need to deliver frictionless, personalized, “retail banking-like” experiences over customer-centric corporate banking channels. Instead of channel silos – one for liquidity, another for payments and so on – customers will see data from all their accounts in one place, from where they can manage liquidity, forecast cash flows, secure trade finance etc. On their part, banks can use 360-degree customer insight to issue not just timely alerts but also contextual recommendations. For instance, being able to alert a customer that a large payment is due the following week, but also suggesting the best options for arranging those funds.
Apart from improving the customer journey, a real move in corporate banking is towards cloud adoption. Many banks have started the cloud journey, but many still have some distance to cover before they are fully cloud-enabled; mainly, they are migrating monolithic, on-premise workloads to the cloud. Early adopters, such as JP Morgan Chase, HSBC and Citibank, are setting the pace by developing their own capabilities as well as procuring certain components from Fintech partners to plug into their overall solution.
One size doesn’t fit all
In the past, corporate banking solutions were largely meant for big companies, but today they are relevant to enterprises of all sizes. Internet and mobile have enabled even small local firms to scale far and wide, creating a need for solutions to manage their money across borders. Therefore, banks need to make sure their liquidity solution can accommodate the different needs of different clients. Only a flexible, componentised solution can do that.
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