If you do an online image search for “banking”, you’ll quickly find ancient photographs of tellers standing stiffly behind grilles and counters while customers wait patiently In a queue for their attention.
This Is a world away from the fast-moving digital world we live In – yet even today, modern banks still cling to outmoded ways of offering services: paying In cheques In a branch or offshore call centers where operatives go through flow-chart scripts and yet fall to solve problems, never mind connecting with customers looking for advice and products that support the way they want to live.
The financial sector Is alive with Innovative products Including Instant, low-cost international money transfers, smartphone and app-based payments systems for small retailers, and services for the unbanked. Meanwhile, blockchain technology threatens to disrupt traditional banking, thanks to Its decentralised, transparent structure, and there are a number of startups based on this technology, which underpins Bitcoin.
The bad news for traditional banks Is that many of these Innovative products and services are being delivered by disruptive challengers rather than the traditional providers of financial products.
So the question for banks is how to join up the dots between the innovation in the fintech sector and their customers, who would clearly benefit from innovative new products?
Every organisation knows that to succeed in the fast-moving digital world, it’s the most agile organisations that come out in front. Achieving that agility doesn’t just mean smart new products – it means a sea change in the way organisations think, behave and move.
Big organisations, limited by risk aversion and slow-moving structures, know that they are not agile enough when it comes to developing new products, and there are worrying signs that they’re falling to connect with their customers, especially the millennials. A report carried out for BNY Mellon found that millennials would far rather seek financial advice from their parents than from a bank, and that the existing retirement savings products simply don’t resonate with young people.
Banks can seem unfriendly and unapproachable, and, ironically, this is partly driven by the first wave of digital innovation that’s swept the sector. With retail banks offering online banking and apps to manage accounts plus the growth of ATMs and card payments, the branch, a traditional hub of customer service, is an increasingly rare sight. In Spain, Banco Santander is looking to close 450 smaller branches, while Citibank closed all its retail banking operations in the US state of Massachusetts in September last year.
Yet delivering online banking via an app doesn’t mean that banks can rest on their laurels – there’s much more they could be doing to put customers at the heart of their operations.
One UK bank is bucking the trend to do just that: Metro Bank is actively focusing on serving its customers via its growing network of branches, including experimenting with a US-style “drive-through” branch in Slough, west of London. This customer-centric approach, making banking accessible via branches, seems to be working for the challenger bank, which in September 2015 reported a 51% rise in customer accounts compared to the previous year.
Metro Bank’s success indicates that focusing on what the customer needs and wants is the key to success.
So, it’s clear that homing in on customer experience is the key.
In a report from KPMG, the consultancy firm notes that a more open approach and a focus on partnering with other organisations” is likely to make [challenger banks] more agile and flexible than the incumbents, both in terms of adding new products and adopting new technology”.
KPMG points to Fidor Bank, which “has already partnered with more than 20 fintech businesses in Germany.”
Many banks are seeking to partner with smart ideas via innovation centres that nurture digital talent and provide the conditions for innovative new products to be developed. Visa, for example, recently opened its first innovation centre in Asia, choosing the dynamic city-state as the ideal home for the latest in its global network of such centres, which offer developers and innovators access to Visa technology and of course to its clients and partners.
Innovation centres are a thoughtful response to the demands of the modern customer and the problems “legacy” businesses face when it comes to innovation, such as entrenched processes and practices. Similarly, a “legacy” approach to customer service and the delivery of products is no longer appropriate – sitting on the phone waiting for a call-center operative isn’t going to win hearts and minds in a world where service should be instant, effective and personal. Indeed, KPMG notes that “many of the digital banks are pushing personalisation as a key differentiator.”
Despite the wave of innovation centres set up, there is still plenty of scope for others to look to creative partnerships: a report from Capgemini Consulting found that only 38% of the leading 200 businesses had set up innovation centres, and the figure is even lower in financial services, where only 28% have done so.
How do these centres work? There are several models: an organisation can set up an in-house innovation hub, with ring-fenced funding and clearly defined processes that are separate from the overall business. Other options include setting up a hub at a university, where the business can tap into the expertise and research of the academics and students. Alternatively, an organisation can work in the community by identifying mentors and supporting startups without bringing them into the business, and a business can also set up an outpost, with a small team in an area that’s already known for the kind of talent and expertise it is hoping to tap into, such as California’s Silicon Valley or the UK’s Silicon Fen in Cambridgeshire and Silicon Roundabout in London.
Despite the small number of financial services businesses setting up innovation centres, those that are already in this space are some of the biggest names in the industry. Among the first was Citibank, which now has a network of innovation hubs around the world, including in Tel Aviv and San Francisco, home to some of the most innovative tech companies in the world, as well as Dublin, Singapore and New York.
Meanwhile, Barclays last year launched its Rise community for innovation in fintech, and it now has a presence in New York, London, Manchester, Vilnius, Cape Town, Tel Aviv and Mumbai, offering mentoring, hackathons and events to support talent and identify projects that could translate into products and services.
These innovation centres are already bringing products to bring to market:
Barclays received some 350 applications for its accelerator program in 2014, eventually whittling those down to 11 projects, including a peer-to-peer application for would-be borrowers to tap into their own networks to raise finance for a property and a predictive analytics platform for people investing in the financial markets to analyse sentiment and predict market moves.
The Barclays scheme also worked with Dopay, which offers a payroll service for the unbanked, which has now raised a total of $7.13 m in funding from eight investors.
There are clear benefits to the banks as well as to the users with customer-focused innovations: apps that customers use can deliver useful insights to the provider, which in turn can use those analytics to help their users further. For example, rather than being hit with an unexpected and punitive fee for an unauthorised overdraft, customers could instead be sent a warning before they go over their limit – and perhaps offered a short-term authorised overdraft at a fixed rather than punitive fee.
Banks can also use partnerships from social media and analytics providers to work with their customers: insights, say, from posting about an upcoming holiday on Twitter or Facebook could allow an agile bank to offer a preferential rate for foreign currency.
While there are plenty of opportunities for banks, and examples of where those opportunities are delivering results, it’s not all plain sailing. Capgemini notes that most of the innovation centres set up by the 200 organisations it surveyed had failed. One bank executive said: “About 80% to 90% innovation centres fail, and end up being a massive waste of resources”.
So what’s the advice for those seeking to avoid problems? One clear recommendation is to make sure that the innovation hub is supported within the company, and from the top of the company, Kevin McKenzie, chief digital officer at Westfield, told Capgemini: “If companies truly do want to Innovate, It’s got to be sponsored by the CEO.”
Another key recommendation is to manage expectations and to have a plan for integrating any products into the organisation’s business while being aware of the time it takes to bring a new product to market. Similarly, the sponsoring organisation should be open to creative ideas while at the same time remaining focused on the alms and needs of the business.
Sponsoring organisations should also make sure they can measure and monitor the performance of projects they are supporting, and should also make sure that an innovation centre can take an idea right through to delivering a product. An early piece of research on innovation hubs presented In Croatia in 2008, noted: “It is … important that, from the earliest stages of the creation of an innovation hub, thought is given as to how the hub will develop competencies in idea generation, incubation, acceleration and the management of the interface between these activities and with the core organisation.”
Putting customers at the heart of the service and being agile and flexible about how services are created and delivered are key strategies for banks looking to develop and thrive in the demanding, digital 21st century.
