Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewtrends in retail banking 2018
Jim Marous, Co-Publisher of The Financial Brand and owner/Publisher of the Digital Banking Report, conducts an annual survey of industry movers-and-shakers to get their insights regarding upcoming trends and predictions. The thoughts for 2018 are not necessarily surprising but are worth sharing.
Below are the trends and predictions for 2018, and my personal “take” on each one.
1. Removing Friction from the Customer Journey.
This mantra is not new; the conversation about the customer experience, omni-channel and removal of pain-points has been going on for decades. And yet, few if any banks have been successful at meaningfully improving the customer experience.
Growing customer satisfaction with megabanks indicates that this is a critical aspect of their bank evaluation and selection. In 2012, big banks trailed both midsize and regional banks in customer satisfaction. That picture was upended in 2016.
“For financial organizations to… meet the evolving needs of today’s customers, five areas emerged as crucial priorities”, says a Deloitte report. These are:
· Move focus of digital engagement from cost reduction to experience management. AB: I strongly agree that managing the customer digital experience is essential to ALL banks’ success, including those who differentiate themselves on personal service and other, more traditional service elements. The real issue here is how to maintain those banks’ differentiation without losing the “personal touch” while digitizing economically and effectively most points of customer contact. It is a formidable challenge.
· Leverage advanced analytics, machine learning and contextual engagement to provide a highly personalized experience. AB: I almost chuckled when I read this sentence. Half of the words in it did not exist three years ago. Plus, the concept herein feels very “big bank” to me. At the same time, one of my boys started a company a couple of years ago focused precisely on this opportunity, which tells me that most banks CAN have the necessary resources to get this done in-house or through outsourcing. The key to success here is the focus on the customer experience and the 1:1 connection, an elusive goal for many years. It appears that technology has finally caught up with the need, but deployment in our industry is still far from pervasive or even noticeable.
· Allow the consumer to engage with their banks on the channels they prefer at the times they want to engage. AB: This is such an old adage. Dick Kovacevich included the “where, when and how” strategic initiative in his company’s strategic plan in the early ‘90s, and it stands true today. The key takeaway for me is not the goal but its execution. It’s time banks got out of the customers’ way and let them connect with us whenever and however they choose. We have the capabilities to do it. All we need to do is stop engineering the process.
· Transition advisory and sales activities from being reactive to being proactive. AB: Another “motherhood and apple pie” goal. Who wouldn’t want their bank to preapprove their auto loan before they realize it’s time to buy a new vehicle? Why can’t we all emulate Amazon when it comes to “next most likely to buy”? At the same time, people are less welcoming of bank suggestions that imply we are scouting their personal account for opportunities – even when these opportunities help the customer make money, save money or save time. It’s a delicate balance that is not easy to strike.
· Engage in end-to-end throughout the customer journey, from shopping to account opening, to onboarding and through relationship expansion. AB: This is certainly the ”last word” on the commercial side, which is why nCino is doing so well. The consumer side, I believe has already made significant strides in this regard. At the same time, until we get our mobile apps to look more like other retailers, where shopping is easy and clear, we will not be able to improve the onboarding experience. Regulatory pressures and uncertainty don’t help here either. I’m not convinced the “cradle-to-grave” concept is as critical to consumers and to our efficiency as it is on the commercial side. I believe we have other priorities that will make greater impact on customer engagement and satisfaction in 2018.
Overall, I agree with Brian Solis of Altimeter Group: “Financial companies need to introduce experience that are more like Tinder and Instagram rather than the traditional services they provide today. …It’s about reinventing dated policies, processes and products for new and more discerning generations of connected consumers”. And Jim Van Dyke of Futurion.Digital says: “2018 will bring more capabilities for shifting more control of one’s financials from banks, merchants, or processors to the end-user. These highly intuitive, trust-creating controls will ultimately drive higher spend, loyalty and trust, with lower misuse”.
2. Expending use of Data and Advanced Analytics.
AB: Recent years have seen a widening gap between organizations that are embracing the potential of digital transformation vs. those that continue doing things the same way they have in the past. This is a conscious choice that every bank is making through action or inaction. Either way, it’s a decision with far-reaching implications.
Mark Turner, CEO of WSFS, went on a three months innovation tour, covered well by the American Banker, to learn from the digital industry and others how to better incorporate that dimension into his bank. His choice was clear. Is yours?
Further, our legacy systems don’t talk to each other, so integrated 360 customer views are hard to come by. It is difficult to initiate proactive customer contact without having a full view of the relationship, which might dictate some of your technology investment resource allocation decisions for this coming year and beyond.
3. Improving multichannel delivery.
“Banks will see less than half their customers face-to-face in 2018”, reports Jim Marous. “This movement of transactional interactions to digital channels will mean that branch and contact-center interactions are more important than ever in building human relationships with customers. Winning financial services organizations will provide all customer contact personnel with the digital tools required to access answers quicker, and will invest in high trained personnel who are better equipped to use these tools and present high value responses to inquiries… the importance of branch-centric factors has dropped in each of the past three years of the study; this is especially true for consumers aged 18-54”.
AB: I have written before about the growing importance of the call center as a relationship expanding and cementing vehicle. The role of the branch in the definition of convenience is rapidly diminishing, yet banks’ overall distribution strategy and investment have not reflected this massive shift. Branch proximity is no longer considered the primary determinant of convenience. It has been replaced by a leading online/mobile app and no foreign ATM fees.
4. Embracing PSD2 and open API Banking
APIs are a structure for how software applications should interact. PSD2 is the second payment Services Directive, designed by the EU, which will revolutionize the payments industry.
The World Retail banking Report 2017, published by Capgemini and Efma, describes three types of APIs:
· Private: APIs that are used within the traditional banking organization, reducing friction and enhancing operational efficiency. 88% of banks viewed private APIs as essential in 2015.
· Partner APIs: Typically between the bank and a third party, enabling the expansion of product lines, channels etc.
· Open APIs: Data is made available to third parties that may not have a formal relationship with the bank (which yields security concerns).
The expectation is that APIs will evolve to offer external solutions to customer need for greater digitization from sources outside the legacy bank, allowing fintechs and banks to partner together and offer better solutions to customers.
It is yet to be seen how this new European regulation of open banking will impact banks and other vendors. We will learn much more about this in 2018, “when some institutions will see this as a new customer acquisition and engagement channel rather than a threat to diminish their business”, Pablo Barbesino, SVP and Head of Digital at Unicredit.
5. Building Fintech partnerships.
Banks initially viewed Fintechs as a nuisance of marginal impact, then as a threat, and now more as partners that can strengthen the banks’ customer relationships, product offerings and digital insights. That collaboration is essential, I believe, for all banks, and especially for the community banks. It is comforting to know that 82% of traditional financial organizations are planning to increase collaboration with fintech firms in the next 3-5 years.
PwC found that 88% of banks fear losing up to 24% of their revenue to financial technology companies in payments, P2P money transfer and personal loans. Another research effort produced by PwC reports that 30% of consumers plan to increase their usage of nontraditional financial services providers. PwC found that consumers already use fintechs for payments (84% of the people surveyed); funds transfer (68%) and personal finance (60%), and personal loans (56%) and traditional deposits and savings accounts (49%) are not far behind.
I find these figures alarming, and a true call-to-action for collaboration with fintechs who can help banks improve their product design, time-to-market, accessibility and ease of use. A perfect example of this move is Zelle, where the largest banks joined forces and set competitive pride aside to help make up lost ground on the innovation leaders.
I asked a good friend of mine whose judgment I greatly respect to review this article as well as quotes from Jim Marous work. Below are his favorite quotes.
Investing in new skill sets will be critical. The digital talent gap is only widening and organizations that can’t keep pace will be crippled by it. Now more than ever, the right talent is truly a competitive advantage. –Danielle Guzman, Global Head of Social Media and Distributed Content at Mercer
AB – So very true – now, in the past and forever. People make all the difference.
Long-term sustainable growth in the banking industry seems only possible with a radical departure from a sales- and product-obsessed mindset to one of genuine customer centricity, and further rationalization of strategies to target the right markets, customer segments and solutions. –Deloitte
To move rapidly from a myopic operational and technology focus to working from the ‘outside-in’, letting targeted customer segments/persona needs, pain points and lifestyle triggers guide and inform strategy, experience design and personalized content and tailored new products. –Mark Weber, CEO of Weber Marketing Group
AB – The first quote, while “big bank” speak, cannot be ignored. I was especially pleased to see targeted personas mentioned, as it facilitates 1:1 marketing and a high degree of personalization. Then again, perhaps not! Someone else is onto the idea.
This movement of transactional interactions to digital channels will mean that branch and contact-center interactions are more important than ever in building human relationships with customers.
AB – I’ve been preaching this for years. Digitization does not mean the marginalization of human interaction; on the contrary, it highlights the importance of human contact whenever it can be utilized to increase value, real or perceived.
Vendors that create marketplaces to aggregate/integrate enterprise banking apps and tools for banks and credit unions – will gain traction in 2018. FIs will more easily integrate and deploy best-of-breed solutions, reduce their reliance on a single, large core provider, differentiate their offering by offering a wider range of choices to their customers, and find effective and efficient approaches to core transformation. –Ron Shevlin, Director of Research at Cornerstone Advisors, Inc.
AB – this trend makes size less relevant, and excuses for non-movement less credible.
The best way to prepare for the inevitable increase in competition that the continued expansion of banking services offered by Amazon, Google, PayPal, Facebook and an increasing number of start-up banks will bring is to be proactive in the development of personalized digital solutions. This will most likely involve new partnerships inside and outside of traditional banking organizations and a redefinition of what a banking ecosystem includes.
AB – Fintechs can be your salvation, not your enemy.
PS The four largest retail banks have been mopping up. During the fourth quarter of 2017, Chase and BofA alone added $45 BILLION in retail deposits averaging a 5bp cost compared to a year ago. For additional perspective, here are some data points from BofA:
· The bank now has 35 million digital users who grew digital payments by 10% YOY vs a 1% growth in non-digital payments
· The number of mobile long-ins during 4Q17 was 1.3 BILLION (almost 3X the year before)
· Mobile deposits now account for 23% of all deposits, both commercial and retail