Retail banks are facing a sea change. The way consumers interact with banks is changing as a result of digital lifestyles. This was highlighted in a recent British Banking Association report entitled ‘The Way We Bank Now – It’s In Your Hands’. The number of people going into their local branch has fallen dramatically, down by about 30% in the last three years. At the same time mobile banking has exploded, with the number of weekly users of the Lloyds Banking Group mobile app rising from 2.1 million in 2012 to 6.6 million in 2014. The number of mobile banking users is also expected to reach 32 million by 2020. What’s more, last year electronic payments overtook cash for the first time.
At the same time, banks are also saddled with legacy technology platforms representing billions of dollars of investment, extensive networks of physical branches which are expensive to maintain, as well as growing regulatory and compliance requirements.
In a post-financial crisis world where levels of trust are low, there is also a new moral agenda where banks are expected to act with more openness and transparency than previously. This is being further reinforced by greater regulatory oversight intended to prevent another crisis. At the same time, consumer expectations are being driven by newer, nimbler more customer-focused companies and banks are being forced to continually evaluate and improve their product and service design. Consider for a moment the example of Uber – no longer do consumers need to hail a cab, have cash available or keep that small taxi receipt in their wallet to get reimbursement later. It’s a simple process for consumers. Can banks truly say the same regarding their offerings?
Banks are also being challenged by other companies outside of the traditional view of financial services. Apple has already driven revolution in the music, mobile phone and entertainment businesses. What will Apple Pay do to banks? How does Bitcoin remove friction in the payments process? With their huge user bases and track record of introducing new technology, many would argue companies like Facebook and Google are now the biggest competitive threat that banks are facing today.
New innovations from within the industry are challenging the status quo across financial services. Think about payment services, remittances, money management, credit, consumer loans and mortgages and you quickly realize that every aspect of banks’ business models are being challenged. Closer to home, new banking entrants like Atom Bank, Moven and Simple – to name a few – are nimbler than their juggernaut competitors and will undoubtedly steal market share.
Much of this transformation is also simply coming about because of a new generation of consumers coming of age, with different tastes, preferences and needs than generations that have gone before. According to the Office for National Statistics, 71% of people aged 25 – 34 access their bank accounts over the internet, compared to an average of 53%.
Most banks are responding to these changes by attempting to transform the products and services they offer and the way in which they offer them. Banks have introduced new web and mobile apps and continue to refine them with new services. Remote cheque deposit is a service which makes life easier for customers by allowing them to deposit cheques without visiting bank branches. Banks are active on social media and engaging with customers that are voicing their complaints. We should champion these efforts and banks should be commended for their efforts. But is this enough to protect them from the unknown future, the nimble competitor? Do they have teams and platforms in place that can learn from new customer behaviors and quickly rollout new products and services?
The technology-first approach of many institutions – looking internally and refining existing financial products and services – demonstrates that banks haven’t fully adjusted to the reality of the digital world. Technological solutions alone cannot solve the problems that banks are facing. Many banks still think and act in command-and-control terms, where one size fits all products are pushed to large numbers of customers. This is ‘legacy thinking’. At a time when informed consumers are looking for an outstanding, hyper-personalised customer experience, this won’t do.
What is required instead is a cultural transformation where banks have a customer-first mind-set. Customers need to be brought much closer to the strategic ideation, design and development of banking products and services. Practically speaking, this means banks should assemble multidisciplinary teams with a broad range of expertise covering strategy, design, and technology, where agile ways of working are the norm. These teams should be encouraged to test, learn, and fail fast, where the aim is many small yet meaningful improvements in products and services over a long period. End customers should be involved throughout the process to help validate these incremental improvements and ensure they’ll be accepted, used and valued. This requires a complete re-evaluation of the approach to managing innovation, experience design and development. Long gone are the days where banks should think in terms of multi-year, waterfall technology builds and solutions. In a world where change is constant, big box technology projects (or any large project involving interaction with customers for that matter) which typically take over a year to complete must go. Consumer behaviours and expectations will have long changed by the time these projects are rolled out.
Digital technology is causing major disruption in all areas and is radically altering the world around us. This is especially true in the world of commerce and retail where, armed with this technology, consumers are spoilt for choice, informed about all products on the market and demand excellent experience combined with high levels of personalisation. Buffeted by other market forces such as new regulation, increased competition and demands for greater transparency, retail banks are in the eye of the storm. In order to survive, these banks must change to survive and thrive. However, responding to this change by overlaying new technology onto old products, old thinking and old processes will not suffice. Instead they must undergo a rapid transformation in their thinking and practice, and become outward-looking customer-driven organisations – or else they will succumb to the great wave of digital disruption.
By Darren Oddie, Strategy Director, Wipro Digital