The banking industry has gone through a tremendous amount of regulatory and operational IT change since the financial crisis of 2008, says Rosemary Stark, senior vice president and head of UK banking at the Capgemini consultancy. More change can be expected in 2014 with big data, mobile and social media technologies all impacting retail banking and perpetuating an enhanced focus on the customer. The need for regulatory compliance reporting and monitoring technology will also be as strong as ever.
At the core of the post-crash transformation in the financial services (FS) sector has been a shift in the very focus of banks, with a renewed commitment to customers a paramount concern for regulators and financial institutions (FIs) themselves. Banks today are fiercely focused on the consumer, positioning customer trust and retention at the heart of their business as they seek to repair sometimes battered reputations. Retail banks in the UK and elsewhere are striving to regain customer confidence and are putting great efforts into creating a customer experience that is positive, efficient and exceeds expectations - often supported by the deployment of big data customer sentiment analytical tools and the effective use of mobile and social media customer-facing apps.
I think this renewed focus on a customer-centric approach will strengthen in 2014 and stay at the top of the agenda for the year ahead. Banks will leverage technology to improve customer experience and to differentiate themselves from competitors, helping them to retain existing customers and acquire new ones.
The increasing amount of regulation that retail banks have to implement and manage continues to pose an on-going challenge - it will reduce the amount of discretionary capital spend available to financial technology (fintech) professionals employed at FIs during 2014. Any non-compliance tech investment that is greenlighted this year will have to offer a quick return on investment (RoI) or be essential in advancing the customer-centric approach necessary to repair the banking industry’s reputation.
In the UK there are specific challenges such as the new seven-day UK Account Switching Service, which makes it as easy for consumers to change bank as it is to redirect their postal mail with all their standing orders, direct debits and so forth automatically following them if they switch bank. This government-back change will make UK retail banks more focused on improving the customer experience as there is a real threat that they may lose consumers if they don’t meet their needs. After all, it is now easier than ever before for unhappy customers to move banks.
In 2014, successful banks will use sophisticated analytics and technology to create highly targeted customer segmentation, unlock digital doorways and adopt a more holistic approach to regulatory compliance.
Big Data: Getting More Specific with Customer Segmentation
Big data is the buzz tech trend these days across just about every industry, and banking is certainly no different. While retail banks have already leveraged big data analytical tools in recent years to gauge customer sentiment, they will now look to enhance their big data tech capabilities even more in the forthcoming year. By using analytics effectively, banks can more precisely target customer segments and take a deep dive into their behaviours and preferences to target new business wins, appropriately timed product offerings and so forth. All this can deliver greater spend per customer and/or deliver new customers to the business.
By investing in big data technology and analytics, retail banks can gain detailed insights into existing customer segments and potentially even create new ones. This deep knowledge will help banks to continue to develop sophisticated bundled products and services in 2014 and to communicate with their customers in a way that is specifically tailored to them. It is answering the key customer question of ‘what’s in it for me?’. For example, many banks are currently focused on top-end retail mass affluent market. Banks are targeting this highly valuable segment, which is made up of customers who are educated high-earners with significant disposable incomes because it pays to do so, and they are often not presently served by a wealth manager or private banking offering. These customers still want to control their funds personally, however, to experience a highly orchestrated and streamlined digital experience, sampling self-service and ‘real person’ support as they want. Retail banks that tailor their specific offerings to this audience and provide appropriate mobile apps, social media and digital services to allow these customers to manage their own accounts and talk to agents when they want can be expected to grow in 2014. A positive customer experience will result from such service provision and this will increase returns from the mass affluent market.
Unlocking Digital Doorways
The world is quickly evolving into an increasingly digitalised society. Banks have been going through their own digital transformation in recent years to keep pace with this evolution and meet the demands of their online customers who want to engage via social media and other channels 24x7. Using big data and other tools to learn as much as possible about the digital habits of customers will allow banks to raise customer experience and offerings to a new level of customization, cementing loyalty.
In recent years, retail banks have successfully leveraged the use of digital doorways such as mobile and social media. Some banks have launched specific services on social media channels, set up avatars to enhance customer service efforts on mobile devices, or have used internet analytics to track and inform online advertising campaigns.
While this transformation started years ago and isn’t really new, the technology available now is getting better and amplifying its effects. It’s only been in the last 24 months, for instance, that comprehensive end-to-end banking services, including mobile, have typically been available in the UK through a multi-channel digital experience. In 2014, there are abundant opportunities in this area for retail banks to further positively impact customer experience and drive integration. Many banks are already upgrading their existing systems to achieve an integrated experience across multiple channels for their customers, a trend that I expect to continue in 2014 as it helps banks retain and acquire customers who are looking to move between these digital doorways seamlessly.
Customers aren’t the only ones reaping the benefits of the digital transformation. Banks themselves have also benefited by providing online self-service that customers can manage themselves, automating processes, increasing efficiency and changing the ‘cost to serve’ paradigm.
Managing Regulatory Compliance
The need for automation and reduced operational costs is obvious because banks are facing enhanced regulatory expense in 2014. Just doing business this year will be more expensive than ever as higher capital ratios under Basel III and new post-crash monitoring and reporting systems, plus standalone resolution regimes and a raft of other expensive regulations need to be complied with by universal and standalone retail banks.
Increasing regulation is accelerating the change seen in banking business models since the 2008 crash. In the immediate future and certainly over the next 12 months, these new post-crash regulations will continue to pose challenges to the way banks have traditionally worked, especially as many of the stipulations differ from country-to-country.
There is no doubt that achieving compliance on a regular basis can build a positive brand reputation in the eyes of bank customers, so the drive to improve procedural and reporting systems at banks is not just a tick-box exercise. You don’t need to look very far to see how financial scandals and punitive fines last year have affected banks’ balance sheets and executive board membership. It’ll be important for banks to take a holistic approach to recognise the relationship between these regulations and identify areas where they overlap to best implement them in the most efficient and effective way. Many banks are looking at how to use technologies to ‘cluster’ how they implement individual regulatory initiatives to take into account cascading effects across geographies, complementary reinforcement and competing effects.
In addition to reacting to regulations with a holistic approach, banks who can proactively predict upcoming regulations will be served well by anticipating operational and compliance implications during planning and the management of new and existing systems.
In summary, banks that leverage smart technology to meet and anticipate the changing needs of their existing and future customers, while holistically managing regulations, will set themselves apart in the year ahead. Expect to see the winners this time next year.