By: Will Weidman, Senior 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.
UK’s Co-op Bank cuts losses despite pandemic hit
LONDON (Reuters) – Britain’s Co-op Bank cut its annual losses in 2020 despite a 22 million pound hit from expected loan defaults due to the coronavirus pandemic.
The bank on Thursday reported pretax losses of 103.7 million pounds, down from 152.1 million pounds the previous year.
Co-op Bank has been labouring to turn around its finances since its near-collapse and rescue by a group of U.S. hedge funds in 2017.
Talks between the bank’s backers and potential buyer investment firm Cerberus collapsed in December without agreement.
“We will have (takeover) interest coming into our shareholders… I think it’s a fact for this bank with the shareholders we have,” Co-op Bank chief executive Nick Slape said.
“I’m just focused on running the bank and getting us profitable. These are distractions that happen every now and again.”
The lender expects to return to “sustainable profitability” from 2021 onwards, despite underlying losses tripling to 64 million pounds last year as the pandemic crunched the lender’s income.
Slape said growth in mortgage lending to take advantage of a housebuying boom and lower costs would help the bank to achieve its target.
Co-op Bank cut around 350 jobs and closed 18 branches last year to reduce costs.
The bank’s core capital buffer – a key measure of financial resilience – was 19.2%.
The lender also said it would link part of executive pay to environmental and social targets from 2022 onwards.
(Reporting by Iain Withers; Editing by Rachel Armstrong and Jane Merriman)
StanChart profit falls 57% as COVID-19 inflates bad loans
By Alun John and Lawrence White
HONG KONG/LONDON (Reuters) – Standard Chartered PLC (StanChart) on Thursday posted a 57% fall in annual profit, missing analyst estimates, on higher credit impairments due to the COVID-19 pandemic.
StanChart, which earns the bulk of its revenue in Asia, posted a pretax profit of $1.61 billion. That compared with $3.71 billion in 2019 and the $1.85 billion average of analyst forecasts compiled by the bank.
Credit impairments last year more than doubled compared with a year earlier to $2.3 billion because of the pandemic, the bank said, but noted the majority of these took place in the first half of the year.
The London-headquartered lender said it would return capital to investors via a 9 cents per share dividend and $254 million buyback, with the total payout being the maximum permitted under temporary ‘guardrails’ set by the Bank of England.
The central bank last year told Britain’s largest lenders to suspend dividend payments and share buybacks for 2020 to help them maintain capital buffers against an expected hit to loan books from the pandemic.
“Having now resumed it, we expect to be able to increase the full-year dividend per share over time as we execute our strategy and progress towards a 10% return on tangible equity,” Jose Vinals, Standard Chartered’s chairman, said in the exchange filing.
The bank said its return on tangible equity, a key profit metric, would climb from 3% to 7% by 2023.
It also said overall income in 2021 is likely to be similar to 2020’s because of the impact of global interest rate cuts.
(Reporting by Lawrence White and Alun John; Editing by Christopher Cushing)
Reasons Why You Should Be Opening an Offshore Savings Account Today
No one has to convince you that savings accounts are a bad idea. As a safe investment, this approach is hard to beat. It also has the benefit of allowing you to set aside funds for all sorts of purposes while you earn a little interest.
While this can be done with a domestic account, there are compelling reasons to consider opening an offshore savings account. How can you eventually use those funds, and why would it be better to house them in an offshore setting? Here are some ideas to consider.
1. Setting Aside Funding for a Short-Term Goal
You have a specific financial goal that you want to reach in five or ten years. It could be saving the money for a down payment on a home or possibly buying real estate. Any such goal requires dedicating a part of your income to reach it. Placing funds in an interest-bearing account in the interim is a good option. That’s where an offshore savings account comes in handy.
The temptation to withdraw money from an offshore account is less likely. While doing so would be easy, it’s not unusual for people to turn toward the balances in their domestic accounts before pulling money from offshore ones. The result is that you’re more likely to consistently make progress toward building the funds needed to reach your goals successfully.
2. Creating a Contingency Fund
No matter what your life circumstances happen to be, it’s a safe bet that you’ll need emergency funds at some point. Think of what it would mean to have six months to a year’s worth of cash to carry you over if your company went out of business or if you lost your job. Even if it took some time to find another full-time position, the money in a contingency fund allows you to maintain a reasonable standard of living while you’re in search of opportunities.
Using an offshore account to house your contingency fund works well because you are less likely to withdraw funds until the need is significant. By opting to set up recurring funds transfers from a domestic account to your offshore account, you can add to those emergency funds without having to give the process much thought. When the day comes when you need the money, it will be easy to transfer the funds back to a domestic account or use the debit card supplied by your offshore bank.
3. Building Assets for Retirement
As many people learned during the last recession, employer-provided pension funds may or may not be around by the time you retire. If the investments made with the retirement contributions tank, there goes all or at least most of the money you planned on using to live after leaving the workforce. Establishing your resources for retirement, and diversifying them, protect your financial future.
An offshore savings account can be one of those solutions. A time deposit account lets you build more reserves for retirement. Since the account is not tied to your employment status or to the investments used to shore up your pension fund, it will be there when you need it.
4. Growing an Education Fund for the Kids
Perhaps the plan is not so much about investing in your financial future. Education for your children may be what’s driving you right now. Knowing how much a college education costs these days, you realize that now is the time to start saving. Even if the kids can secure scholarships that cover much of the expense, there will still be costs that need attention.
An offshore savings account provides an excellent means of setting aside funds for education. Let the balances roll over from year to year and earn more interest. Take advantage of offshore accounts that provide higher rates of interest when the balances exceed specific amounts. This strategy will make funding college a lot simpler.
5. Building Reserves for Purchasing a Vacation Property
You’re reaching a point in your life when having a second property to use for vacations sounds appealing. Now is the time to start setting aside funds that will aid in the purchase. An offshore account can be the means of growing the balance a little faster. The result is that when you’re ready to buy that second property, there will be considerably less that needs financing.
This solution also makes the process of transferring funds for purchasing international real estate easier. For example, you decide to buy a vacation home in the same country where your offshore account is based. Your bank can make withdrawing the funds and remitting the money to the seller much simpler.
6. Protecting Some Assets Just in Case
You don’t have to work in a high-profile field to be sued. What would you do if things didn’t go your way? The court could order most of your domestic assets seized to settle the judgment. How would you get by then?
Here’s something that you may not know about the money in offshore accounts – domestic courts can’t order a seizure of the account balances. Even if a lawsuit means every asset you have at home is taken away, there is still the money in your offshore savings account to help you rebuild. It may also be the way that you keep a roof over your head and food on the table while you decide how to go about rebuilding.
7. Taking Advantage of Higher Interest Rates
If you compare the interest rates offered in many international settings with what you can command at home, the difference is immediately evident. It’s possible to open an offshore savings account with a relatively low balance and gradually add to the balance. Over time, you reach a balance level that allows you to earn some of the best rates found around the globe.
When the plan is to place money in an account to accrue interest for over many years, an offshore savings account is the way to go. Once the day arrives when you want to use those funds, the balance will be noticeably more than if you had invested the same proportion in a domestic account. Think of how good you’ll feel knowing that your money was able to grow simply because you chose the right offshore location for the account.
8. Enjoying Peace of Mind
At times, it seems increasingly difficult to find peace of mind in today’s tumultuous world. With money placed in an offshore savings account, it’s possible to secure a little bit of tranquility even when everything else is upside down.
By establishing an account in a politically stable country, offers excellent returns in the form of interest, and is protected from any domestic court action, you know there will be assets to draw on no matter what. That’s a good feeling.
Get Help Setting Up an Offshore Savings Account
These are just a few reasons why opening an offshore savings account is a smart financial move. There is no better time to start than now, and an excellent offshore location to choose is Belize.
Caye International Bank, located on Ambergris Caye island in Belize, Central America has helped thousands of people establish offshore financial accounts. We can help you, too, in determining which offshore accounts work best based on your goals. You’ll find that setting up an account is a lot simpler than you anticipated.
This is a Sponsored Feature.
Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank, a FinTech School Instructor and the published author of The Digital Banking Revolution – now in its third edition.
You can follow his posts on trends shaping the banking and financial services industry on Twitter: @luigiwewege
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