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TOP TRENDS FOR BANKS IN 2016

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TOP TRENDS FOR BANKS IN 2016

By: Will WeidmanSenior Vice President at APT, leads APT’s financial services practice.

2016 is looking to be one of the most transformative years in financial services in decades. Disruptive competitors are growing, digital and mobile continues to evolve, branches look more and more like Apple stores, and rates may even start rising at last.  Banks will need to embrace smart innovation not only to keep up, but to truly differentiate themselves in a cost effective manner. Here is our take on the top trends in banking for 2016:

Take the branch where it hasn’t gone before: The branch continues to play a vital role in customer engagement and account acquisition, and the bottom line is that customers still want to have a branch for help with their more complex financial needs. Banks now have the opportunity to not only make their branches more efficient, but also more financially successful.

Many banks are looking to add new technology to the branch to supplement customer needs in a cost effective way. Several basic transactions have already moved out of the branch, and when a customer does walk into the branch, simple transactions are increasingly done through technology (e.g. smart ATMs). To that end, many banks have created universal banker roles to better address the customer needs that can’t be automated. Enhancing the way the physical branch works with other channels has also helped some banks increase their convenience, for example by allowing appointment bookings through a mobile app.

Think outside the box to optimise your network: Banks need to think more creatively when it comes to the branch footprint. The model of only having the traditional three to five thousand square foot branches across the network no longer makes sense. Banks will still need full service branches, but these branches need to be made more appealing to draw in customers.

An example of providing an inviting, social atmosphere can be seen with Capital One, which is testing new café style branches. They offer a space for customers to socialize, work collaboratively, and discuss their banking needs with staff.

Some financial organisations are looking to open more smaller, low-cost, lightly staffed branches. These branches will focus on convenience and giving customers more locations to choose from. The key for banks will be to understand where to put each type of distribution point to balance customer needs with cost and efficiency.

An omnichannel approach to branch closures: Since the number of branches in the UK peaked a few years ago, banks have been strategising how to streamline their networks in order to decrease costs and improve profit margins. This may mean reducing the amount of branches they have open, however it is crucial for banks to hone in on the right balance between cost savings and business retention when selecting how many branches should be closed. Branches remain relevant to many customers, and shuttering a branch can be very risky if one considers the costs of customer attrition and lost revenue.

In 2016, banks will need to take a calculated approach to branch closures, incorporating the omnichannel impact of closures into their evaluations. For instance, a low performing branch may not have any nearby branches, making it seem a bad candidate for closure. However, there may be a high level of online and mobile engagement for customers of that branch and therefore, minimal negative reaction if the location closes. To achieve that, banks should analyse previous branch closures to better predict how sales and existing relationships will move to nearby branches or other channels in the future.

Harness the potential of the mobile app: Having a user-friendly mobile app used to be a differentiator – now it’s table stakes. Millennials check their phones 45 times a day on average, giving banks an unprecedented opportunity to engage with their customers.

Banks are increasingly beginning to capitalise on this trend by mobile communications with customers through push notifications, and 2016 will see an expansion of this strategy. Push notifications are cheap, interactive, and can be easily targeted, giving banks the ability to contact the right customer with the right message at the right time.

Further, they lend themselves well to experimentation: banks can compare the behavior of customers that receive certain notifications to those that do not. For example, a push notification could be sent to a subset of customers nearing their credit limit, and direct them towards another card offer or a limit increase if they are qualified. Banks can then examine the test vs. control impact of the messaging to determine how to roll it out broadly.

Defend your territory: Emphasise personal service: Banks will need to continue to innovate on a number of fronts to keep pace with FinTech startups. Many analysts have predicted a dismal future for the traditional retail bank in the face of these competitive challenges, but they overlook the power of banks’ biggest strength: personalized service.

Banks will need to continue to innovate on a number of fronts to keep pace with FinTech startups. But rather than scrambling to mimic every capability of these new players, banks should double down on their edge in personalised customer interaction.

By developing a truly customer-centric focus beyond mere lip-service, traditional retail banks can maintain prominent positions in the market. Optimising incentive structures to prioritise customer service, investing in employee training programs, and highlighting service advantages in marketing campaigns are just a few ways banks can defend their territory.

The millennial question: Millennials are a favorite topic of discussion in the banking world.  This segment presents unique challenges, especially in the credit area: millennials are wary of holding large credit balances, and are more likely than other age groups to use debit or pre-paid services. To make the most of these opportunities, banks need to try strategies to cross-sell more profitable products to these customers.

Millennials also tend to be less loyal to their primary bank, and are almost twice as likely to switch to a competitor as other customers. Millennials have access to a wealth of information and shop around.  However, these same traits present a good opportunity to consolidate a relationship with a millennial.  Banks should focus on communicating with customers about the benefits of consolidation, and should also try adding incentives to encourage this behavior with the most profitable customers.  This information should be readily accessible through digital channels given millennials’ tendency to research products online.

Improved technology has also made customer engagement better and easier. For instance, sophisticated predictive analytics technology can help banks test the potential impact of marketing initiatives and product launches to improve the outcomes of business initiatives. Indeed, the volume of tests is even more amplified when considering the rapid, iterative testing that is possible with customer-level experimentation. Sophisticated banks are conducting upwards of 1,000 tests per year and rapidly changing their strategies based on the results. As the financial services ecosystem continues to quickly evolve in 2016, it will be important for banks to avoid risky decisions and maximize the impact of good ideas by adopting a rigorous testing culture.

Banking

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society

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Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 1
  • More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
  • Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
  • Fewer SMEs believe nearby branches are important when choosing a bank or building society
  • 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
  • When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account

Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.

Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied.  In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.

When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.

The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.

However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.

In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September.  However, the Post Office could be fulfilling the role of branches in some areas.

The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.

While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.

Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.

“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”

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Banking

The Next Evolution in Banking

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The Next Evolution in Banking 2

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

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Banking

Banks talk a good game, but are bankrupt when it comes to change and innovation

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Banks talk a good game, but are bankrupt when it comes to change and innovation 3

By Erich Gerber, SVP EMEA & APJ, TIBCO Software

You hear all the time about the incredible pace of change in technology and the way that it affects business, but sometimes we kid ourselves about the real speed of that change and the depth of its effects. Retail banking is a perfect example to illustrate the yawning chasm between the illusion and the less attractive reality. In this article, I want to provide a critique of the banking sector and its failure to change fundamentally and to modernise.

Banking is an old sector: the Banca Monte dei Paschi di Siena has its roots in the 15th century and the oldest UK banks go back to the 17th century. We often talk about legacy holding companies back, restricting their speed of operations and hampering their ability to adapt. Well, established banks have legacy in spades.

They also have cultural challenges. The old saying has it that something is “safe as the Bank of England” and that is a standard for security. But today we need banks to be more dynamic and represent something more than being a deposit box for our wealth. Consumers are accustomed to the superb customer experiences in entertainment (Spotify), devices (Apple), retail (Amazon), travel (Uber) and much else. Surveys show that they want their banks to be responsive, easy to use and available across multiple channels. They’d like banks to be secure but also to be advisors, enable flexible movement of assets between accounts, provide useful data analytics, be cloud- and mobile-friendly and offer deals that are specifically targeted at their interests.

S-l-o-w progress

At their core, banks now must become digital enterprises but, frankly, it has been slow going. As Deloitte observed: “While many banks are experimenting with digital, most have yet to make consistent, sustained and bold moves toward thorough, technology-enabled transformation.”

Erich Gerber

Erich Gerber

We all know that retail banking has changed significantly: you can see that in the proliferation of apps and the fact that, in pre-pandemic times, the morning and evening commute are peak times for transactions as people arrange their finances while sitting in trains, buses and subways. Banking has become a virtual, often mobile business, thanks to new tech-literate consumers pushing banks in that direction. But my fear is that the banks aren’t moving even nearly fast enough and that’s bad for us as consumers and bad for the banks themselves.

Banks are under pressure to change because challengers don’t have the legacy constraints of incumbents and because PSD2 and open banking regulations are having the intended effect of promoting banking as a service, delivering transparency and greater competition.

Attend any business technology conference and banks will talk about their digital transformations and customer experience breakthroughs, but it’s my contention that a lot of this work is more window-dressing than platform building. Or, to put it another way, banks are injecting Botox, rather than undergoing the open-heart surgery that they really need. It’s a case of ‘look: fluffy kittens and shiny baubles’ in the form of apps and websites, but the underlying platforms remain old and creaking and that means that the banking incumbents are hampered.

To be fair, I have lots of sympathy here. They simply can’t move as fast as the challenger banks that have had the luxury of starting their infrastructure from scratch and sooner or later that will come back and bite them. Look, for example, at cloud platforms where only 10 or 20 percent of infrastructure has been migrated despite promises of cloud-first strategies and the banking data centres where monolithic on-prem hardware still reigns.

You feel that slowness of action in your interactions with banks that communicate only via issued statements, letters notifying you of changes to Ts and Cs, and threats when you go into the red. Inertia is nothing new in banking either: we like to think that technology change happens in the blink of an eye but in banking contactless NFC took the best part of 20 years to go mainstream.

This is the dirty secret of banks. They see the need to change but remain shackled. Why are the banks so slow? Historically, because it was hard for competitors to gain banking licences and the capital to really challenge so there was no catalyst or mandate for change. Also, because change is tough and fear of downtime or a security compromise to critical systems is very real. More recently, because internal wars in organisations set roundheads against cavaliers, the risk-averse against the bold, resulting in impasse and frustration.

I said change is tough and that’s why banks need to power through on the basis of Winston Churchill’s wisdom that ‘if you’re going through hell, keep going.” How? By a combination of maniacal focus on expunging legacy systems, placing maximum emphasis on superb customer interaction experiences and digitally enabling anything that moves.

Right now, the banks are surviving, not thriving; they’re rabbits blinking into the headlights of approaching traffic, frozen in the moment. But they need to disrupt themselves before others do it to them: change is painful but not as painful as the alternative. They have to do much more or they will see a decline in their fortunes due to their bankrupt capacity for innovation and their inflexible infrastructures.

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