The Financial services sector, and banking in particular, is at an inflection point. The sector faces many issues such as increasing regulation; aging legacy systems; a high cost base; new, challenger banks; and other competitors, such as retailers, moving into key aspects of the banking domain such as payments, and credit cards. In addition, customers are increasingly likely to review their banking needs and what was regarded as customer loyalty, is increasingly seen as inertia. Recent legislation in the UK has facilitated the ability of customers to switch accounts and, whilst the numbers taking advantage of this is growing, it is not yet a torrent.
There is no room for complacency however. In a recent TCS survey 71% of respondents felt that they would lose customers to challenger banks and new market entrants in the next five years. Challenger banks often have a different structure and lower cost base than the ‘traditional’ banks and thus can be more fleet of foot in responding to customers’ needs and in bringing new services to market. In addition they tend to be based around a digital offering, rather than being heavily slanted towards bricks and mortar branches. The retail entrants also tend not to offer the full gamut of banking services but instead cherry pick those offerings where they can compete cost effectively, building on their brand and current position to extend what they give their customers.
How then should traditional banks respond to this threat?
There are a number of things they need to do. Firstly they need to use their well established brands as a base from which to build. Secondly they need to use their deep understanding of the market and considerable infrastructure to support their customers. Thirdly they need to use their strong position to invest in new disruptive technologies themselves – and many are already doing this – in order to develop offerings which their customers want on the devices they use most – primarily smartphones and tablets. One UK high street bank, Lloyds, has already announced that digital will be the foundation of its customer interactions going forward, and the others are also investing heavily already and products such as Pingit, Galaxy etc are manifestations of this.
This means using new technologies to facilitate empowerment for customers by, for example, using digital technology to push applications to them to enable them to access their data anytime, anywhere; or by providing the facility for consolidation of all banking products together with a ‘single view’. It also means empowering staff to make faster, but still correctly evaluated decisions. One example would be the use of customer data to pre-approve credit limits, thereby enabling almost instant decisions, and using information to develop an understanding of the individual customer’s journeys so as to better prepare for their needs as they mature. Using the cloud can bring many benefits without having to invest in very expensive infrastructure and, although banks are beginning to explore this, there is still a lot more opportunity to exploit it more fully, thus reducing costs, removing the need for heavy investment to maintain systems and sharing flexibility with customers. Although it hasn’t been explored fully yet there is also an opportunity for developing a Banking Utility to offer low-cost processing such as TCS’ Diligenta in the Life insurance sector.
Currently challenger banks are small and merely nibbling away at the edges of the banking sector. Incumbents, therefore, have a window of opportunity to prepare defences against this challenge and develop a suite of offerings that is looking ahead to the new generation of customers.
What will successful banks look like?
There are some key areas which will mark out successful banks which can use the new disruptive technology to stay competitive and maintain their market share.
- Develop customer centricity by offering new services to increase customers’ engagement with the bank, and thus reduce the likelihood of them switching. This will naturally aid cross-selling and gain greater loyalty through improved customer experience, channel optimisation and exploiting new media such as phones and tablets.
- Embedding a new agile, proactive and innovative culture creating new propositions based on use of technologies that adds value to customers and goes beyond the boundaries of traditional banking
- ‘Industrialisation’ using, for example, the cloud to develop a ‘shift-wise’ change to processing that simplifies complex procedures such as client on-boarding which can currently take days if not weeks, pushing costs right down and enabling faster service and response times
- Being agile in the use of business intelligence and exploiting the vast information which banks hold internally and melding it with external sources to provide exceptional understanding of needs and thus focussing services with pinpoint accuracy on ‘’customised segments of one’’ in a personalised manner with a radical shortening of timescales
- Security – in this age of increasing cyber-crime and fraud, banks will have to use their technology resources, combined with robust procedures and safeguards, to meet stakeholder’s demands for data transparency, completeness, timeliness compliance and accuracy whilst ensuring security of data.
The banks who will lead the industry will be those that embrace the new disruptive technologies to offer the customers the services they want now and in the future.
By Neil Jones, Consulting Partner, Tata Consultancy Services (TCS)