Rising interest rates and prices have a significant impact on our daily lives. While there is no end in sight to the downturn, banks that are taking social responsibility, financial education and personalised customer engagement more seriously are realising that numerous opportunities are opening up as they adapt their business models to a competitive market.
Financial education through insight and analysis: Banks should help customers gain more insight into their own finances, as well as advise them on which decisions are the smartest. For banks with growth ambitions, this has become a crucial factor. Customers expect an analysis of their spending patterns that shows them potential problems in advance. Banks can provide their customers with insights that help them make smarter financial decisions and identify where expenses can be reduced or shifted for better economic and sustainable results.
The internet and social media are full of ads with tempting offers for “risk-free” investment opportunities that promise a quick return. When banks raise their clients’ awareness with sound information about safe investments, they give them a better understanding of the seriousness of the different financial products. At the same time, many customers miss the contact with an advisor they can trust. Financial institutions should take this need seriously and use solid and helpful information to gain a competitive advantage and show their clients that they care.
Sustainability: ESG reporting requirements for companies are becoming more stringent, and banks should feel obliged to share data that meets sustainable disclosure requirements. Banks can reward customers who show that they are in control of their own financial spending, for example by buying goods from companies that place a high value on sustainability and source their products accordingly. Customers also appreciate the opportunity to compare their own spending with their social responsibility goals.
Data to protect customers: Today, we share large amounts of data with those who offer free services through apps. The question is whether it will be possible to obtain customers’ consent to share data on a larger scale. This will allow banks to offer more personalised products and services. It is increasingly up to the banks to show their customers the added value of the extended use of their data. The purpose, of course, must be for banks to protect their customers from expected and unexpected financial surprises or to provide access to smarter and cheaper services. Wherever this “value exchange” of data works for customers, acceptance is higher.
The platform-based business model: When banks become the hub between customers and third-party providers, a new attractive model for all emerges. With the bank as a marketplace, customers are enabled to have a better everyday financial life, providers are able to tap into an attractive segment and the bank is able to open up new revenue models. A relevant example is that a service company has to pay for access to the bank’s platform and perhaps also receives a share of the profits. This increases the incentive for the bank to get clients to sign up to its platform. In turn, customers get a wider and potentially more attractive range of services that they would normally have to buy elsewhere.
Simpler and smarter financial services: New providers are constantly emerging with smarter loans and new financing models. New opportunities are also emerging through Open Finance, a data-sharing model that allows users to share their financial data with third parties. In this way, data about customers’ financial lives can form the basis of offers based on their financial history, benefiting secure payers over time. For individuals, for example, this can mean a lower interest rate based on sound financial behaviour. For businesses, overdrafts can become cheaper or more accessible, improving cash flow. Banks need to take advantage of these opportunities now, before new entrants benefit from the data they have collected on their own customers.
Shift to customer-centric interactions: As in all other industries, banks are constantly having to do more with fewer resources. Back-end service tasks are being automated, allowing staff to move into more client-facing roles. Compliance and risk management, for example, is an area where processes are increasingly standardised and solved faster with algorithms. This in turn increases regulators’ confidence that policies are overseen by systems, not just people.
Access to talent: Companies across industries are struggling to find workers. The attractiveness of banks, asset managers and financial intermediaries to highly skilled professionals still suffers from a poor reputation. The global financial crisis of 2008 is responsible for this, and since then, attracting and retaining talent has posed significant challenges for the industry. Addressing the industry’s shortcomings in terms of environmental impact, diversity and inclusion would help make it more attractive to determined younger talent, but would not be enough on its own. Banks are also asking themselves whether they should develop their digital know-how internally or whether it is best to outsource their technology development to external partners. In-house data analytics experts who can process insights and analyse patterns are likely to become the key differentiator of banking services in the future.
New types of competition: Banks have been facing competition from new players for many years, but only a few of the new entrants have managed to capture large market shares. What the new FinTechs have in common are cooler services and simpler and more intuitive user experiences – it is precisely the agility that the more traditional players are striving for. The really big upheaval will happen when the platform giants from California or from big markets in Asia make a real stab at the financial services market.
The bank as software house: It is not surprising that the most innovative banks can make money with their research and development. New services and technical solutions can be of great value to other banks, and access to smart new features can easily be converted into services that are sold to others. However, with this opportunity comes the additional burden on banks to act as custodians of their customers’ identities and data.
Trust is the key word. Banks will take a much more important position in people’s lives than before. Thirty years ago, when we talked to the bank manager, we stood there with our hat in our hand. Today the roles are reversed. Banks need to realise that they have to be on the supply side, and the solution is technology, smarter processes and better use of people.
Operating models that do not allow organisations to respond quickly to change exacerbate deficiencies in the critical areas of talent, ESG and technology deployment. Progress on all these fronts is needed to ensure the industry is ready for the future. Banks looking to make an effort in the coming months and years must not forget that ultimately it is about personalisation and being more than just a bank – a trusted and reliable partner that helps us stay safe online and make better decisions.
Author: By Daniel Meere, Head of BFS Consulting, GGM, Cognizant
Photo: ©Rosel Eckstein_pixelio.de