In recent years, numerous consumer surveys have criticised the UK’s big banks for all looking the same from the customer’s point of view. This point of view has clearly been taken to heart by the UK competition regulator, which recently announced that it was bringing its highest level of investigation to bear on the sector.
Other jurisdictions, particularly in economies with large, highly consolidated retail banking markets, are likely to watch this process extremely carefully. In Europe, where legacy banks are dominant, and several countries have retail banking industries not unlike that of the UK, it is likely that the EU authorities will also take a keen interest.
Banks should not underestimate the political and popular will to enforce change, but it would be much better for the industry as a whole if that change were to be on the industry’s own terms, not the regulator’s. Change is driven by the needs of each individual customer who holds a bank account.
After all, customer needs are the primary driver to offer innovation and this is changing fast. Banks’ response to the rapid diversification of customers’ needs and expectations should naturally result in more differentiation and more choice for customers.
That this hasn’t happened already is, in my experience, simply down to the sheer difficulty involved in making new offers, across multiple markets, available in any bank of any size – there are no inherently protectionist instincts afoot in any large bank in the UK or, at least, not amongst those in the senior management.
Most senior officers would be delighted to be able to outmanoeuvre the younger competition and to offer something which customers actually want – or even offer something that customers don’t know they want yet in the future.
The fact is that banks, perhaps uniquely of any industry, rely on technology so complex and so venerable that many elements of it date from the 1970s and occasionally even before. There are very few industries where crucial underlying technology is nearly 40 years old, and this aged infrastructure is slowing down the offer of better loyalty banking services.
There are already good examples of such innovation. For example, South Africa’s ABSA bank offers ‘Value Bundles’, a range of product packages covering a range of transaction types, to suit the differing needs of a wide variety of customers. The Value Bundles sit under a much larger, varied product structure which that offers many combinations of customer benefits and payment options. On a specific scenario, offer innovation has come in the shape of adding additional family members at a cheaper rate for current customers of ABSA, meaning there are extra resources available for the family to put down a mortgage.
However, such initiatives are still comparatively rare. The industry cannot be brought up to date until the technology has been brought up to date. That will require organisational transformation, and a shift to a collaborative, customer-centric model of banking services.
That would go a long way towards promoting a more diverse and competitive industry, and it would certainly be the preferable way of achieving that. The alternative would be allowing the authorities to decide on how financial services businesses are run.
By Nanda Kumar, CEO, SunTec