By Mark Aldred, banking specialist at Auriga
As we embark on the new year, 2020 will hopefully become distant but sobering memories, it is time to step back and consider the lessons learnt and look to the trends likely to emerge in the banking sector in the year ahead. To stay relevant and to differentiate themselves in the current digital age, banks need to demonstrate a solid understanding of the current landscape and stay aligned with customers’ changing habits and expectations. COVID-19 may have accelerated trends that were already in play but whether they continue at the same pace is yet to be decided. It will be those that evolve rapidly that will get ahead and stay ahead. More than ever, it is not only about competitive advantage but, for some, it may be about survival.
Sharing ATM infrastructure
ATM infrastructure sharing is an active trend in markets such as the Netherlands, Belgium, Sweden, Finland, and Indonesia. In Belgium, an initiative known as Batopin, means that a network of bank-neutral ATMs, previously managed by its four biggest banks will from 2021 run on a single software platform. In the Netherlands, a similar exercise started two years earlier. There the major banks have merged their ATMs under the ‘Geldmaat’ label. These bank-neutral ATM estates are one of the responses to challenges of owning ATM and branch estates in a world where banking is more accessible and competitive than ever. This is one way banks can guarantee continuous access to cash to their customers without the cost burden of running channels, which their new competitors do not even offer. Through pooling, the industry landscape is changing, and banks’ costs are reducing.
Other technology-led approaches are delivering value, including increasing adoption of cloud-based technologies, removing the need to rely on massive on-premise infrastructure, skills, and services. The pooled ATM business model provides many benefits and as discussions progress in different markets, banks, and ATM deployers will certainly be watching with interest the progress made in Indonesia and Belgium, when considering next steps. There needs to be more use cases that prove this model can indeed reduce costs while maintaining access and improving customer experience.
Cashback for all?
Loss of access to cash when ATMs disappear has the potential to be a national scandal and an embarrassment to ATM deployers. Offering cashback at retailers of all sizes is one way of softening the blow. In Germany cashback limits and the requirement to make a purchase have long been lifted. Whilst in the UK new schemes to address this are on their way as we move into 2021, the government revealed that consumers received £3.8 billion of cashback when paying for items last year – making it the second most used method for withdrawing cash in the UK behind ATMs. This suggests that properly implemented cashback, with support from retail, could help reverse the unwelcome reductions in the accessibility of cash in remote and rural communities in particular.
That said, it is important not to fall into the trap of shifting the burden onto small businesses. They are already under their own pressure because of changing consumer behaviours and, of course, the pandemic. The benefits to the retailer should be more footfall and lower costs of cash handling. Small stores full of consumers only wanting access to cash for which the retailer cannot charge is an outcome that will not help revive communities.
Bank branch closure rates and ATM losses keep on accelerating but we have not reached peak yet. It is predicted that there will be a continued decline in the penetration of UK branches over the next four years.
To compensate for the loss of ATMs, LINK (UK’s national switch, owned by the ATM deployers themselves) has founded a delivery fund to enable all communities to request help with accessing cash. Any member of the public can get in touch directly with LINK or via their MP or local council to argue the case for an ATM to be sited (or re-sited) in their area. This is bringing out the best in some communities and several have already successfully argued that they need an ATM.
Equally, there are regional and national initiatives aimed at re-banking areas where legacy banks cannot profitably operate a branch (or even an ATM). Many of these are attracting interest and investment but the road is long, and the re-opening of branches or ATMs in many remote communities will be made to wait while some of these bodies build their alternative banks. The barriers to entry are vast, not least the requirement for a banking licence, which means the model favoured by many cannot be expected to be live much before 2024.
So, while bank branch closures continue, and alternate providers build their propositions, the only way to mitigate and manage this is to consider new, lean, and agile models. The next generation bank branch must be cheaper to run, smarter, smaller, automated, full-service, and available 24/7 to pay its way in the community.
A great example of how this could look is the way Millennium BCP in Portugal has deployed new model branches built around their MTM devices (Millennium Teller Machine). As part of its long-term plan to modernise its business and balance the books, Millennium recognised that many branches built on the legacy model could not support themselves. They recognised that consumer behaviours and habits meant that new sites should be considered for their new branch models. So, it created a new kind of customer-centric branch format for the future – a 24/7 branch supported by remote banking overnight. This resulted in greater footfall and, before COVID-19, the new style branches delivered productivity gains and increased deposits. As transactions were managed by personnel by day and remote teller assistant by night, the branch was cheaper to run – this model is now deployed around cities in Portugal to improve customer loyalty and retention score. As we emerge from the pandemic, further development of this model to accommodate new behaviours are expected to achieve great results for Millennium and its customers, who rate in the best for customer service in Portugal.
If banks do not produce lean, smart, remote, around the clock branches somebody else will – whether it be community-based or even independent ATM deployers – the principle of white labels is absolutely part of this new future. If this model is adopted, then in future it is also possible that we will see branch sharing.
In the UK there are already Business Banking Hubs set-up, a shared space providing business and corporate customers more flexibility to manage their day-to-day finances. In shared branches the user experience can “follow the customer”. Sharing the space with a third party commercial or community enterprise should lead to an upswell in community hunger for this.
AI continues to thrive
Artificial intelligence will continue to be a key business investment as financial institutions seek out amplifications of the technology. In 2021, expect the continuing slow adoption of AI to do repeatable and predictable processes. Already AI is deployed to provide cash predictions to forecast when and where cash is needed. Predictive tools are time and cost-effective, they can also be used for preemptive equipment maintenance. This facilitates the scheduling of engineering calls before a failure, improving availability, and reducing costs. We may also begin to see AI being used to monitor the mood of customers using facial recognition. This could allow banks to determine how to address the customer, what services they should promote, and when.
What next for tele-banking?
As has always been the case, the customer journey cannot be neglected. Banks need to have a good channel mix; a digital platform is not enough as they are susceptible to IT disruptions and failures. Tele-banking has always proven to be an important lifeline and back-up. Without it, customers could become disenfranchised.
Over the years, the banking experience has changed through the adoption of technologies designed to reduce costs and increase efficiencies. In fact, the unintended consequence has been that they have become more and more impersonal. Over 50 years ago, ATMs took us outside the branch. Tele-banking provided customers with remote interaction. Most recently, internet and then mobile banking mean that some demographics never engage in person with their bank and the distance between the supplier and customer even during engagement can literally be thousands of miles. This lack of human touch has reduced customer loyalty.
On the topic of channels, like many others, a first in and first out policy is seldom the right one. Banks need to evaluate each channel and see its value to customers and provide choice. Older channels, such as tele-banking, should not be the first to disappear, and in fact it could see a revival alongside video-banking in the new 24-hour branch model.
In fact, as online banking gives way to a mobile banking one could argue the case that this is the channel that might start to disappear sooner. Channel choice will differ by generation, demographic, and other factor but it remains key that choice is available and that there is always a reliable alternative available.
Branch and ATM, marriage, or divorce
Legacy ATM infrastructure needs an upgrade. Without it, the channel will not be able to modernise and play a role in the next generation of delivery channels. ATMs and assisted service devices offering a full range of banking services, not just cash, need to be in the mix. Automating all teller functions using self-service technologies, supported by video- and tele-banking, is likely to accelerate.
2021 is all about making consumers’ lives easier as they decide for themselves how they want to engage safely with their banks. Each customer journey should be able to become bespoke. Access to cash is an on-going issue but the stakeholders will need to work harder than ever to find viable solutions given the impact of COVID-19 across all industries.
Japan PM Suga’s cellphone cut call adds to BOJ’s headaches
By Leika Kihara and Kaori Kaneko
TOKYO (Reuters) – Prime Minister Yoshihide Suga is making life tougher for the Bank of Japan as carriers respond to his calls to cut cellphone charges, a move seen as adding deflationary pressure on the country’s already weak economy.
Suga has publicly said he believes Japan’s cellphone fees are too high and that carriers are a monopoly, a message seen as resonating with younger voters.
Nodding to the pressure, major Japanese carriers NTT Docomo, KDDI and Softbank announced plans to cut charges by up to 20% from as early as March.
That could push down the core consumer price index, which fell 0.6% in January from a year earlier to mark the sixth straight month of falls, by as much as half a percentage point, analysts say.
The move highlights how deflation remains the BOJ’s primary headache, even as its U.S. and European peers face communication challenges posed by recent rises in inflation.
It also shows how in Japan, even seemingly straightforward government decisions can have vast ramifications for the BOJ, given the spectre of deflation.
“Unlike in the United States, government policies work to push down inflation in Japan,” said Mari Iwashita, chief market economist at Daiwa Securities.
“Japan is a country where companies struggle to raise prices because consumers are so sensitive to price hikes,” she added.
(Graphic: Japan is facing rising deflationary risks, https://graphics.reuters.com/JAPAN-ECONOMY/DEFLATION/jznpnolgjvl/chart.png)
(For an interactive graphic on Japan’s core consumer price index, click here https://tmsnrt.rs/3qAtiXc)
Cellphone fees have a big influence on Japan’s price gauge because they have the fourth highest weighting among the 523 components making up the core consumer price index (CPI).
The resulting fall in core CPI would mostly offset an expected boost from a recent rise in energy costs and the base effect of last year’s pandemic-induced sharp declines, analysts say.
Excluding any impact from cellphone fee cuts, analysts expect core consumer prices to start creeping up by mid-year but rise only modestly thereafter.
“Bottom line, Japan’s trend inflation is quite weak because demand is sluggish,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
To be sure, lower fees would give households money to spend on other items. Fees for a 20-gigabyte plan in Tokyo are highest among the world’s six major cities and triple the sum in London, according to a Japanese government survey last year.
But data so far paints a bleak consumption outlook.
Bank deposits jumped a record 15.5% in January from a year earlier to 827 trillion yen ($7.83 trillion), 1.5 times the size of Japan’s economy, as households save rather than spend.
Real wages fell 1.2% last year, the fastest pace of drop since 2014. Nearly three quarters of firms have no plan to offer blanket base pay hikes at this year’s labour talks, a recent Reuters poll showed.
Takumi Harada, a 27-year-old engineer, says he would consider switching plans to reduce the 6,000 yen in smartphone fees his family pays each month.
But he has no intention of spending the extra money on other items. “I think I’ll just save,” he said.
($1 = 105.5800 yen)
(Reporting by Leika Kihara and Kaori Kaneko, additional reporting by Kentaro Sugiyama; Editing by Raju Gopalakrishnan)
BOJ’s Kuroda says explained March review plan to PM Suga
By Yoshifumi Takemoto
TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Thursday he explained to Prime Minister Yoshihide Suga the central bank’s plan to conduct a review of its policy tools in March.
“I explained how the global economy was picking up, and how the BOJ needed to conduct the review to continue its ultra-loose monetary policy,” Kuroda told reporters after meeting with Suga.
Kuroda said Suga did not have any particular comment on the BOJ’s March review and the two did not discuss the Tokyo Olympic Games.
The BOJ governor and the prime minister hold meetings once every few months as a regular practice to exchange views on the economy and policy.
The BOJ unveiled a plan to review its policy tools in March to make them “more sustainable and effective,” as the hit to growth from the coronavirus pandemic forces the central bank to maintain its massive stimulus programme for a prolonged period.
(Reporting by Yoshifumi Takemoto, Writing by Leika Kihara; Editing by Jacqueline Wong)
The truth about Open Banking: why tech and regulation alone can’t create a customer experience revolution
By Andrew Stevens, Principal, Banking and Financial Services at Quadient
Over two million customers are now using products powered by Open Banking. Thanks to PSD2 and the Open Banking regulations, financial providers can now use customer data to provide services such as multi-account visibility, debt management, and microtransaction investment. However, many argue that Open Banking still isn’t living up to its initial hype. When first introduced, Open Banking was tipped to revolutionise the customer experience, improve customers’ control of their data and force huge industry-wide change. Many argued it would displace industry incumbents and pave the way for a future led by digital challengers – a problem many consumers didn’t even know they had. Perhaps it’s time to move beyond the grandiose claims of the industry commentary and go back to the original wording of the Open Banking rules: the intention was simply to level the playing field of the financial industry.
Bemoaning the regulations and claiming they haven’t lived up to the hype is an understandable argument. However, Open Banking has delivered by enabling digital challengers to make some great strides; roundup accounts and the exact products offered by micro-investment apps like MoneyBox wouldn’t have existed without it. While traditional banks have naturally seen less need for Open Banking, with the Big 4 still managing over 75% of UK current accounts, there is an opportunity to learn from how challengers have harnessed their new access to data to personalise the customer experience – something that 80% of organisations say is important to their customer strategy. However, a cultural shift is just as crucial to improving customer experience as any technological advancements or regulatory changes.
Lessons to be learned
Open Banking regulations alone have not created the services that have propelled customer experience forward. However, they have democratised customer data, which has led to huge advancements in the back-end of applications. This in turn has helped create new functionality like intuitive microtransactions, one-click top-up payments between different accounts, and the ability to deliver investing or concierge services through challenger banking apps.
There are lessons to be learned here for traditional banks – Open Banking can be used to give consumers what they want. But what actually is that? Statistics show that 40% of consumers want personalised guidance to help them manage their money better, and 82% of people who use Open Banking-enabled apps have seen improved money management. So why are traditional banks still lagging slightly behind in delivering these types of services to their customers?
New technology is not enough
Perhaps because major banks continue to focus efforts on fighting for a larger share of the customer’s wallet. Despite industry experts affirming that the UK Big 4 still reign supreme, there is high industry anxiety around digital challengers. Banks instead need to learn to coexist with these newer banks, and see how their services can complement each other. Banks could integrate their offering, delivering useful advice or tips on budgeting based on data from Monzo or Revolut, or provide investment options for customers with a hefty lump sum in their MoneyBox account.
However, using new technology to do this isn’t enough. It’s also important to abandon the idea of ‘the mass market customer’. By embracing the fact that each customer has a different set of needs, traditional banks can truly tailor the customer experience and orchestrate it at the individual level. This is far more likely to please customers, 90% of whom now expect businesses to anticipate their needs and act accordingly. Banks could harness Open Banking to see a customer’s whole financial picture, using that as a basis to predict which additional services could be offered that will suit their specific habits.
The great differentiator
Whether you’re a traditional or a challenger bank, delivering the best possible customer experience is a key priority. Today’s customer wants their life and financial position to be enhanced by their bank. While Open Banking alone cannot deliver this, the regulations have certainly enabled challenger banks to provide the new services that consumers want. It’s important for traditional banks to not only learn from this, but embrace the fact that customers have multiple different accounts with other providers. This mindset shift will enable traditional banks to begin building and offering more personalised services to their customers, and compete in the rapidly changing financial market.
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