Banking Moving Forward - April 2014 - Written by : Derek Garriock
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Banking Moving Forward April 2014 Written by : Derek Garriock
ABOUT THE AUTHOR Derek Garriock is responsible for strategy and solution development
across Banking and Financial Services within Experian, delivering
insight from customers and the industry to support proposition and
market development for provision of data and analytical tools to
clients.
Derek Garriock
Looking at innovative ways we can help organisations to manage credit risk, prevent
fraud, target marketing offers and automate decision making, Derek is designing
Head of Business integrated solutions to allow us to help more individuals to check their credit report
Solutions and credit score as well as protect against identity theft through their existing financial
Experian services providers.
Derek joined Experian in 2013, having previously led Sales Transformation Design and
Delivery within RBS Group before moving to lead Programme Management for RBS’s
Retail Bank, supporting the largest global corporate restructuring programme ever,
following the global financial crisis.
Prior to that he was an Executive Director with NatWest Stockbrokers with responsibility
for Marketing, Products and Trading Technology and also launched and ran the retail
derivatives and FX trading businesses for RBS and NatWest. Recognising a greater
need for financial education for consumers he authored an investment video education
programme, explaining the basics of money and saving, through to property investment
and trading foreign exchange.
He is a fellow of the Chartered Institute for Securities and Investment.
3 | Experian - Banking Moving Forward
INTRODUCTION AND CONTENTS
This paper is an exploration of potential changes and challenges facing the Banking and
Financial Services industry over the next 3 to 5 years, which Experian is keen to provide
relevant, appropriate support and service around, to the organisations which we serve.
The industry has faced significant headwinds in Significant opportunity still remains for those providers
recent years, as it has dealt with the mistakes of the who can serve their customers well, utilising new
past and an environment of low interest rates which technologies across all channels. However, the less
has compounded the pain. Regulation changes have agile and cost constrained organisations are likely to
been wide ranging and set further constraints, both find the next 5 years as challenging as the last, because
to existing players’ recovery and growth and also new we anticipate a convergence of mobile technology,
entrants wanting to enter the market. Cost reduction customer needs and wants and new players through
and management has become a key focus to protect digital wallet based propositions being a catalyst for
investors’ return on equity and maintain the license to change across the banking industry. This could be as
operate. far reaching as the changes in the past decade in the
music industry.
Alongside this, we are seeing changes in customer
behaviour and expectations as they adopt new
technology at ever increasing rates.
01
Overview Focus areas
The customer is the life blood of any organisation and must be positioned • Expectations of their bank
at the heart of product and proposition design to ensure success. • Their financial needs, wants and problems
Delivering excellent customer experiences will define banking into the • Multi channel servicing
CUSTOMER future. • Customer experience
Overview Focus areas
02 The regulator, post the global financial crisis, has been tasked with
delivering banking reform – ensuring that never again will a financial
institution be too big to fail, whilst creating an environment where customer
•
•
•
Shaping a new environment
Expectations of regulated firms
Driving a paradigm shift for customers
detriment becomes a thing of the past. • Stronger process and evidence
REGULATOR • Creating a customer culture
Overview Focus areas
03 The UK has a regulatory and political environment that wants to encourage
competition and choice. New entrants will find the UK banking environment
tough to get started, but, as short term lenders have shown, if you can fill a
•
•
•
Non banks and digital wallet
Mobile payments: an opportunity and threat
New banks
gap in the market, there is space and money to be made. Delivering reform on • Crowd funding and investment
NEW ENTRANTS payments is about to collide with maturing thinking in the digital wallet space.
Overview Focus areas
04 Banking and technology are inextricably linked with the very essence of a bank
– from balances to transactions and customer information existing in a bank’s
data centre. More than ever before, technology is shaping the next evolution in
•
•
•
Delivering change / standardisation and APIs
Big Data
Security, fraud and biometrics
banking, whilst also constraining the pace of its progress. • Future innovation impacting banking
TECHNOLOGY
Overview Focus areas
05 UK banking lacks differentiation and the industry and brands have been
dragged through the dirt over the past 5 years. It’s a time for change, for
transformation; but this time, by listening to customers, what their needs,
•
•
•
The future
Retail – a bank for life
Wealth
wants and problems are and providing help, solutions and guidance to • SME business
BANKING EVOLUTION navigate through life’s financial journey.
01 CUSTOMER 6 | Experian - Banking Moving Forward
EXPECTATIONS OF THEIR BANK Consumers want to conduct their financial activities quickly and easily, and
at a time that suits them, whilst reducing the effort of performing financial
activities, in order to save time and exertion. It will become unacceptable
to spend 45-60 minutes telling ‘your’ bank your information. Customers will
PROVIDE expect to be known!
MAKE
KNOW ME GUIDE AND
THINGS GREAT REWARD ME
PROTECT ME
EASY SERVICE Minimum Expectations
Keep records of Always look Convenient and Trust provider to Feel that
Reliable and easy to use technology
who i am and for unusual effortless access be open, honest my custom
any previous
dialogue and
transactions and
activity and keep
to products
and services.
and transparent.
Provide a
and loyalty
is genuinely
UK call staff and convenient branches
requests me secure Intuitive digital genuine and recognised and
experiences courteous
service
rewarded
Resolve issues quickly
Ability to grow, Proactively
adapt and evolve
around my life
support me with
transparent,
Always be
available,
Want
and needs and knowledgeable acknowledge
demonstrate
they care
expert information
and advice
and fully rectify
mistakes Know me
Notice or Guide and protect me
understand
when my
circumstances Make things easy
change and
respond
Provide great service
Greater expectations
Easy to deal with
With higher technological and financial awareness, future customer Value for money
expectations of their bank and banking services are beginning to change.
Consumers want their personal needs recognised; they are no longer Transparent and fair
happy to accept a ‘one size fits all’ approach to financial services. Family
and social structures are changing. As the life stages of consumers
become more diverse and less predictable, the importance of products Aspire
and segments that are targeted at individuals and niche segments will
increase. Products and services need to be as diverse as consumers Reward me
themselves, and therefore, providers will need to develop a holistic
understanding of the customer and their situation. Fair fees
7 | Experian - Banking Moving Forward
THEIR FINANCIAL NEEDS, WANTS AND PROBLEMS
Short Term SELF RELIANCE VERSUS
BANKER NOT A RETAILER
WELFARE STATE
Money transmission There is a growing realisation across Customers want and need a trusted,
society that the government cannot afford two-way relationship with their bank;
to provide for an aging population and they don’t expect a hard sell. They expect
Overdraft and short term lending that consumers MUST make provision for trusted guidance, where they are known
themselves in savings, investments and and helped by their bank. Relevant
pensions and will need significant help communications highlight suitable
Credit card here. products matched to needs.
Insurance – home/car
EDUCATED ON LIFE’S FINANCIAL
Life assurance JOURNEY
MOBILE REVOLUTION
The cost of providing financial advice As everything goes mobile, customers
Medium Term within a heavily regulated environment will expect super easy, secure capability
will further constrain what banks can without all the hassle of passwords and
Lending – mortgage/loans provide to customers. We see advice
being maintained for HNW and Wealth
onerous authentication.
Digital wallet will be a key focus in
segments but focussing on YouTube style banking and payments over the next 5
Cash savings education for mass market, driving self years. Mobile will change the type of
directed solution development across the relationship the customer wants with their
industry. bank: higher frequency, shorter duration,
Critical illness cover personalised to them.
Illness and health protection
Rise of the self directed, self service customer
Share dealing and investments Whilst regulation and technology change the delivery landscape, the core things a customer needs
from their financial services provider do not change; they still want help in achieving their life goals and
Long Term dreams whilst avoiding the nightmares. Access to information, particularly in video format online, is
beginning to create a more empowered, informed, ‘self directed’ customer – not afraid to make financial
decisions themselves, who will look for reassurance on their actions through social and financial
Pensions and retirement age networks.
Wills How banks and other financial institutions go about providing financial advice and education over the
coming years will be critical. The number of people over the age of 65 is expected to rise to 19 million
Long term care by 2050. Already, just one in four over-50s are planning to retire at age 65 – principally due to a lack of
savings preventing them stopping work. Meanwhile, the Office for Budget Responsibility has said the
rising number of older people will increase spending on the state pension, social care, and health care
IHT and legacy planning from 14% of Britain’s national income to almost 25%.
8 | Experian - Banking Moving Forward
MULTI CHANNEL SERVICING Branch
Choice Control Conveniently located branches
• Give me options and • Comforted by being
Convenience I’ll decide
• Don’t try to lock me
in control but needs to
accept responsibility
Appointments readily available
• Best channel to service into your brand, I want and move away from
specific need, will use flexibility claim culture
all • Expects instantaneous Open at convenient times
• Service is King gratification / fast
• Always on / mobile response
connected • Focussed on self Enough staff to avoid lengthy queues
Communication Telephony
Cost
• Contact me on my
• Effort to get / best use
of my energy
terms, when relevant
• Stop asking me for
Knowledgeable staff available 24/7
• Not price driven information you should
• Constrained by existing
debt (e.g. Student loans)
know already /
portability of my data Offer call back at times that suit
• Networked with
companies, institutions
Customers want multi channel banking services.
and each other through Free calls to Customer Services
the internet and social
In particular, there is a strong attachment to media
traditional branch-based banking. Despite the Only use UK-based call centres
growth of online and mobile banking, the vast majority of current account
customers still use a branch from time to time.
Digital
Current account customers most value the banking services that they
use frequently, such as debit cards, online banking and ATMs. Mobile and
telephone banking services and contactless cards are the least valued Easy-to-use online and mobile
services across the current account customer base; albeit, mobile is a
sleeping giant. Let me instantly move money
The vast majority of consumers believe that banks should be more
open about their charges, despite the efforts made by banks to improve Web / apps clear and easy to navigate
transparency in charges in recent years. Customers agree that there is no
such thing as free banking and would like greater clarity from their bank
on the cost of banking services. Offer 24/7 access to accounts
9 | Experian - Banking Moving Forward
IT’S ALL ABOUT THE EXPERIENCE
Customer experience and service design CUSTOMER JOURNEY - CREDIT CARD APPLICATION
Every time a customer touches a company, the Comparison best options selection
Arrive on Your Bank offer landing page
brand is either enhanced or diminished. As
APR & Balance transfer information
mobile technology redefines the frequency and Pre application documents and information
method customers use to interact with banks and Type of card identified – low rate
other financial institutions, delivering the right
experience – every time – for the customer, will Comparison site selected Proceed to online application
become a critical element to every step of every
Google search ‘credit card’ Pre-application
process.
More pre application information
It’s all about creating immersive experiences Ongoing relationship Name of Experience:
Your BankCredit
for customers which exceed their expectations Card Application Enter personal information, name, DOB etc.
and engage them emotionally – supporting their
Customer Ma
Payment of first bill
involvement and engagement in the experience
Live help chat
through use of technology to capture, create, share
ation
Log onto digital account Description:
and access their financial information, when and Customer is looking Job & bank details entered
p lic
where they want, through the channel of their for a new credit card
na g
Monthly bill received
Ap
choice. & wants to apply
e
quickly online Balance transfer information / additional card
m
nt
e
Card used for purchases
Getting this right will provide bank brands the Boarding Application decision
opportunity they need to recover rapidly from the
damage inflicted over the past five years to brands Balance transfer complete Legal stuff (SECCI)
as a result of the global financial crisis. Getting it Card activation process More legal stuff (Card agreement)
wrong will mean there is no brand!
Postal receipt of card & information within 3 days Card number and credit limit confirmed
The customer should come first – not money.
Close application down
When needs aren’t met, you will get designed out.
Key A typical ‘assumptive’ design process
Assume we know what
customers need
Build Launch User judges Fix!
How can this be a
positive experience?
A ‘customer driven’ design process
Make or break moment Where do we need
– what can we do to data to help deliver Get ideas from Prototype
Test, refine Launch Reap rewards
delight customer? the experience? customers ideas
10 | Experian - Banking Moving Forward02 REGULATOR 12 | Experian - Banking Moving Forward
SHAPING A NEW ENVIRONMENT Responding to the global financial crisis
There has been an understandably strong response by the regulator and
politicians following the global financial crisis in the UK. Waves of regulatory
reform have been introduced to make the overall market more stable.
Regulation, however, is not ‘free’; it generates substantial costs for banks,
reducing resources to support innovation and returns to investors. It does,
however, serve a purpose to ensure the right outcomes are generated for
customers and subsequently, the wider economy.
Restoring confidence and encouraging greater transparency through clear
pricing is a key objective; although banking is clearly not a free service –
something which the banks appear reluctant to address in the short term for
fear of the consequences (it’s a Mexican standoff around who goes first rather
than let’s go together) and further ‘banker bashing’ in the media. However, it
remains a fundamental issue at the heart of why the UK banking industry is
struggling to recover five years on from the crisis and following various
mis-selling scandals. The core services they provide are given away for free
and as a result, other inventive ways of generating revenue have been thought
up, from PPI and packaged accounts to collateralised debt obligations and
various structured investment vehicles.
In order to protect consumers and promote effective competition, the free
banking myth will need to be quashed with an industry-wide response to
introducing a fair, transparent fee structure for provision of banking services.
Otherwise, the business case for existing banks, let alone new entrants, will be
challenging to make a fair return on the provision of banking services moving
forward.
Regulator’s core areas of focus
Regulation is not ‘free’; it generates substantial Protecting consumers
costs for banks. It does, however, serve a purpose
to ensure the right outcomes are generated for Market integrity
customers and the wider economy.
Promoting effective competition
13 | Experian - Banking Moving ForwardEXPECTATIONS OF REGULATED FIRMS
Outcome 1
Consumers can be confident that they are “We want a market where consumers have access to and are able to buy products and
dealing with firms where the fair treatment of services from firms they trust, that are readily available, good value, and perform as
customers is central to the corporate culture. expected, and, when things go wrong, they are readily put right. We want a competitive
market where firms are able to make a sustainable return, where innovation takes place for
the benefit of the consumer and where the IT infrastructure is sufficiently robust to provide
Outcome 2
Products and services marketed and sold in ongoing consumer access.”
the retail market are designed to meet the
Clive Adamson,
needs of identified consumer groups and are
Director of Supervision,
targeted accordingly.
Financial Conduct Authority, November 2013
Outcome 3
Consumers are provided with clear
information and are kept appropriately What do they mean by regulating conduct?
informed before, during and after point of sale.
As a regulator, the Financial Conduct Authority looks at the way financial organisations treat their
customers, and the way they behave towards them. By regulating conduct, they mean that they
Outcome 4 regulate the way these organisations behave towards the consumer – for example, making sure they
Where consumers receive advice, the give enough information about the product they are selling.
advice is suitable and takes account of their
circumstances. What do they mean by prudence?
The term ‘prudence’ is directed towards how financial organisations manage their risks, particularly
Outcome 5 financial risks – how safe or sound they are. A prudent organisation will have appropriate systems and
Consumers are provided with products that controls to manage its risks, and enough financial resources to deal with the consequences of those
risks. An organisation not behaving prudently will put its financial resources at an unacceptable level
perform as firms have led them to expect, and
of risk, or will not have enough financial resources set aside to run effectively. An organisation
the associated service is of an acceptable not acting prudently may also put consumers at risk of loss, or be unable to afford to put things right,
standard and as they have been led to expect. which could also threaten consumer protection.
Outcome 6
Consumers do not face unreasonable post-
sale barriers imposed by firms to change
product, switch provider, submit a claim or
make a complaint.
14 | Experian - Banking Moving ForwardUK REGULATORY FRAMEWORK Since 2013, the new financial regulation framework has been operative
in the UK. The Financial Services Authority (FSA) was replaced by
the Financial Conduct Authority (FCA) and the Prudential Regulation
Authority (PRA). The Bank of England has overall responsibility for
financial stability and a new Financial Policy Committee (FPC) of the Bank
of England.
THE BANK OF ENGLAND
Protecting and enhancing the stability of the financial system of the United Kingdom,
including working with other relevant bodies: FINANCIAL POLICY COMMITTEE (FPC)
• Treasury
• PRA Identifying and taking action to remove or reduce
• FCA systemic risks (including through directions and
The Bank’s Special Resolution Unit continues to be responsible for resolving failing recommendations to the PRA and the FCA)
institutions under the Banking Act special resolution regime
FPC powers of recommendation and
direction to address systemic risk
FINANCIAL CONDUCT AUTHORITY (FCA)
PRUDENTIAL REGULATION AUTHORITY (PRA)
Ensuring that the relevant markets function well,
Promoting the safety and soundness of the PRA
securing appropriate degree of protection for
authorised persons, including by seeking to
consumers, protecting and enhancing the integrity
minimise the adverse effect of their failure on the
of the UK financial system and promoting effective
stability of the UK financial system
competition in the interests of consumers
Prudential Regulation Prudential Regulation Conduct Regulation Prudential and
Conduct Regulation
Systemic infrastructure Prudentially significant firms Smaller investment firms, exchanges, other
(central counterparties, settlement systems (banks, building societies and credit unions, financial services providers
and payment systems) insurers and major investment firms) (including IFAs, Investment Exchanges,
Insurance Brokers and Fund Managers)
15 | Experian - Banking Moving ForwardNEW RULES REDEFINE BANKING
UK banks are facing unprecedented regulatory upheaval, with Basel III set to have some of the most
far-reaching strategic, operational and structural implications.
The toughest challenge is how to deal with the impact of reduced returns across different products,
portfolios and trading books. In an environment where investment and profitability are hard won, some
areas of banking will no longer be viable as a result of Basel III.
The challenges are compounded by a torrent of parallel regulation, including the
Independent Commission on Banking (ICB) recommendations and recovery and
resolution plans for systematically important financial institutions (SIFIs); as well
as Capital Requirements Directive IV (CRD), EMIR, Dodd-Frank, MiFID and the FSA
remuneration code.
The response from many banks has been fragmented and reactive. Smarter competitors are already
re-orientating their strategies and restructuring their businesses as they look at how to anticipate
and take advantage of change. This ranges from locking in deposits to refocusing limited resources
on business that will deliver the best returns. Successful strategies will be built around a detailed
assessment of how each aspect of the business will be affected by the new capital and liquidity rules,
so you can judge what areas to concentrate on and what may need to be wound down or divested.
As Boards, supervisors and investors demand greater transparency over risk taking and its
management, it will also be important to upgrade reporting capabilities and simplify entity and
booking structures.
16 | Experian - Banking Moving ForwardDRIVING A PARADIGM SHIFT FOR
THE CUSTOMER
PASSIONATE
‘Conduct Risk’ – the new buzz word for putting the
customer first!
Good conduct is really about genuinely putting the customer at the centre
of the organisation and how it operates serving them; thinking about
yesterday, today and tomorrow, and being able to evidence this end-to-
ENGAGED
end process at individual customer level. This will create a number of
challenges for businesses as the regulator visits and asks for a walk
through of how a specific customer’s circumstances have been taken
into account when reaching a specific outcome, what communications/
marketing materials they have received relating to this matter, who they
have spoken to and what was discussed. Historic, general information
UNDERSTOOD
(spread sheets and slide decks) relating to segments or products will be
insufficient. It needs to be specific information at customer level. This will
require new investment in robust processes and systems to provide this
level of granularity, but will be more cost effective than remaining open to
future fines and reputational damage.
HEARD
Alongside these elements, banks will need to truly immerse their
organisations in ‘always thinking customer’. This has been tried in the
past in multiple ways, but has obviously failed. Giving communications or
a department a label of ‘Customer Experience’ will not be sufficient.
A customer experience model can help understand where a company is in IGNORED
their journey to delight their customers and serve them well. We need to
reframe the regulation – not as a pain point, but as an opportunity to excel
and grow a sustainable business by truly focussing on the customer.
The opportunity for every bank is to truly become a customer-centric
organisation. By focussing on the customer and their needs/wants and There are five levels of customer experience, ranging
problems, we will define our future solutions through truly understanding from companies that ignore customers, to those who
what the customer needs, and moving away from the perception of a
‘product push’ sales focus, to service providers who know their customer
create passionate customers
better than anyone else and serve them well.
17 | Experian - Banking Moving ForwardNEW RULES REDEFINE BANKING
The challenge
01 DATA DRIVEN DECISIONS:
Solutions to Customer needs,
Offering the right financial product and DATA wants and problems
guidance that meets their needs through their Validated customer To demonstrate you know your Customer,
life stages have determined affordability and
facts driving decisions suitability to Customers individual
and journey circumstances and have validated data
Supporting and proactively contacting and provided. Delivering a consistent multi
advising where action would add value channel replicable experience
Giving choice to pick how they interact
with the bank across channels based on
convenience and price
RECORD: SUITABLE OUTCOME EVIDENCE:
Replay individual
Outcome focused regulation will materially
impact all main bank functions
What happened,
when and 02 DELIVERY 03 situations
Creates an audit
where EVIDENCE
Record the RECORD trail that can play
Regulatory moves to facilitate ‘switching’ Playback & back the actual
exact customer End to end
increase pressure to retain and attract experience analyse Customer journey
Customer as they saw it,
valuable customers that customers experience when
have via digital,
interactions allowing access to
required Customer information
mobile, branch
Successfully executing the changes using or telephony. and records which can
Establish stage satisfy the regulator,
traditional methods will increase costs at a provides evidence of what happened
gates to ensure process
crucial time when banks need to drive greater to challenge future complaints and
progresses as required.
operational efficiencies ability to analyse and improve Customer
interaction with brand.
A new business operating model
Historic issues in banking have been driven by a number of factors, from being weak on process
execution, lack of technology and data driving key processes with little to no evidence of what happened,
alongside a performance management and reward culture which drove the wrong behaviours.
Future business operating models will require extensive use of customer data, from both internal and
external sources, to prepopulate information and focus customer interactions on the customer need,
with suitable next steps defined by sophisticated decision engines, whilst creating a clear audit trail of
what happened. This ‘big data’ will enable active management of ongoing customer needs and product
suitability through event-driven alerts and triggers, whilst reducing cost to serve and improving the overall
customer experience.
18 | Experian - Banking Moving ForwardNEW CHECKS AND BALANCES FOR A standardised, automated, recorded sales process which supports
knowing your customers and delivering suitable outcomes
A CUSTOMER MEETING
Preview Affordability Suitability Product Evidence journey
Before meeting customer, Behind the scenes, the Having gathered and application By recording all the steps in the
Adviser prepares for customers pre-populated validated data alongside Complete credit check customer journey, we build evidence
meeting, reviewing income and expenditure product eligibility criteria, for appropriate products to support any future challenge to
customer information. and other affordability including credit check, and feed into banks suitability and can centrally check
Appointment confirmed factors are validated to all suitable outcomes are existing sales fulfilment what our sales team are doing with
and pre-population support any product presented onscreen for process (DATA passed customers. Customer comms (video
agreement confirmed recommendations or the adviser to progress so no re-entry of data) or content?) via email or SMS should
by SMS/email with suitability reviews. with Customer solution a decision management be triggered to validate the customer
customer ahead of selection. platform. is happy with purchases, post sale,
meeting. with seller following up any concerns,
which are further validated.
Future opportunity to
build new integrated
01 02 03 04 05 06 07 08 09 10 services to address
customer or regulatory
requirements
Branch Review Credit score Cross sell Follow up
prospecting tools Customer meeting takes Whilst discussing the Using all available To ensure the customer relationship is
Adviser prospecting place, Identity and Fraud customer’s current data to provide Adviser developed, feed data gathered into SVC/
tool to drive customer checks, pre-population lending and credit with suitable cross sell Big Data solution and drive ongoing contact
appointments through of data from ‘knowing requirements, show opportunities and options strategies relevant to individual, alongside
annual reviews, life stage customer’ and quality and explain how across bank’s full product triggering next review meeting in step 1. Also
triggers, changes in conversation undertaken credit score is derived, suite. Time has been take credit search, CCJs, bankruptcy alerts to
circumstance e.g. house around their needs, how their actions can freed up due to pre- trigger follow up reviews. Reaffirm ongoing
on market. Big Data wants and problems and impact it (+ve) or (–ve), population to give this suitability. Phase 2: develop digital data tools
driven insight. solutions to address. building awareness and area appropriate focus for customer to re-engage with their data to
Behind the scenes, understanding. and time. control and direct their finances. Also utilis
various risk checks web analytical tools throughout the end-to-end
happen. process to refine it further.
19 | Experian - Banking Moving Forwardoverall customer experience.
CREATING A CUSTOMER CULTURE
Companies at each level of the evolution
generate increasing business and customer
value
Stage Business Value Customer Value
Unprecedented relationships with customers Customers are passionate evangelists of
5 mean business is the undisputed leader in the the business, referring the business to their
Passionate industry in key metrics such as Net Promoter friends and creating viral-marketing situations.
Score and customer retention. Customers feel privileged, share their positive
experiences and encourage others to do business.
4
Comprehensive, actionable picture of Customers feel that the business cares about
customers, and a culture of accountability, them and they trust the business. Customers are
Engaged ensure a business which is differentiated in the willing to pay more for increased value and feel
market and generates loyalty. rewarded for loyalty.
3
Deep insight programmes in place that track Customers feel that their needs are mostly
Understood and drive customer focus in the business and addressed by the products and services offered.
ensure a more consistent experience.
A good understanding of who customers
2
are and how they feel about the business Customers feel that the business is interested
Heard can be leveraged to make some in learning from them. But in the end, they don’t
improvements in the customer focus. have much attachment yet.
1
Business is inward looking. Only most Customers often feel that the business does
basic understanding of, or interest in, not understand or care about them. Customer
Ignored who customers are or how they feel. experience is inconsistent and often unpleasant.
20 | Experian - Banking Moving ForwardDELIVERING GREAT CUSTOMER Businesses that want to deliver great customer experiences must work
hard across three main pillars:
EXPERIENCES
INSIGHT A business must have a thorough, fact-based understanding of who its customers
are, what they need and what their behaviour is.
The entire business must be passionate about customers, from the CEO to the post
CUSTOMER room assistant. Delivering value to the customer is part of the daily way-of-working
CULTURE and at the heart of the organisation.
EXPERIENCE The business must define, design and deliver a consistent, differentiated experience
at every single customer touch point, which delights the customer.
DESIGN
21 | Experian - Banking Moving ForwardMEASURING PROGRESS
Stage Insight Customer Culture Experience Design
5
Proud customers promoting the business to
Individualised experiences delivered
friends/family/colleagues and through social media Collaborative innovation of products,
for different customer segments
Passionate Consistent top box Net Promoter Scores services and experiences with customers
Leader in revenue growth through delighting Company organised around customers
Pro-active actions in place for
predicted experience failures
customers with high % CAGR
Constant awareness of how customers feel Customer insight used to drive annual Total customer experience strategy
4
after any interaction strategic planning defined
Future impact of business actions on Customer-centred approach in place for Customer experience is consistent and
Engaged customer base fully understood all major initiatives differentiated
Consolidated picture of customer needs, Employee base engaged in living Customers understand the experience
satisfaction and behaviour customer focus they can expect
3
Identification and targeted fulfilment of Employees understand available
customer needs customer insights Key drivers of positive experiences
Understood Drivers of customer behaviour understood Business performance measured on actively managed
Key customer behaviours used to trigger customer satisfaction/behaviour Target customer experience defined
business response Strong ‘internal customer’ service culture
2
Customer satisfaction and its drivers Customer experience continually
understood
Management understands available
improved
Heard customer insights
Understanding and clustering of Competitor customer experience
customer base Executives actively drive customer focus
understood
1
Tracking of competitive
positioning Executives understand importance of Critical customer experience failures
Ignored Complaints managed and customer focus addressed
root causes established
22 | Experian - Banking Moving Forward03 NEW ENTRANTS 24 | Experian - Banking Moving Forward
INTRODUCTION Consumers are demonstrating increased willingness both to shop around and
to purchase financial services and products from non traditional providers.
This move away from traditional sources is due in no small part to negative
perceptions of the existing industry. Consumer trust in banks is lower than
ever. Technology developments in online and mobile are driving a decline in the
need for traditional face-to-face distribution. They also allow new entrants to
disintermediate the traditional bank role. A case in point is the rise of PayPal in
Digital Wallet New Banks and the payments business.
and Mobile Divested Banks
Payments The next few years will see a significant number of new entrants enter the UK
financial services industry. Some will be well known and trusted brands who
will leverage and deepen their relationship with customers through provision
of financial services, with a particular focus on payments and mobile wallets.
Others will be new names. Some will offer new, innovative approaches to
addressing customers’ needs through solutions like crowd funding – rethinking
how SMEs finance the growth in their business. Some will exploit gaps in
Short Term the market in the same way we have seen the short term lenders growing in
Crowd Funding
£ Lenders prominence in recent years.
Key areas of focus for these new entrants will be:
• Which markets are the most attractive to enter, in terms of customer
segments, location and products?
• Which is the most viable approach to market entry? Should prospective
entrants look to buy an incumbent or one of the businesses that are
The UK’s financial services sector is being re-shaped and currently being divested, attempt to partner with an existing firm, search
disrupted by a number of emerging trends since the onset of for an affinity relationship, or build an entire greenfield operation? In many
recession in 2008. Factors driving the change include increased cases, their decisions will be influenced by regulatory requirements.
regulatory demands and the need for strengthened business
practices in response to weakened public confidence and a • What products will they offer and how will they differentiate their offer from
changing global marketplace. There is regulatory pressure for the competition? Will differentiation centre on price, customer experience,
customer service, or exploiting a new technology capability?
the big banks to make divestments, either in reciprocation for
receiving state aid in the depths of the credit crunch, or out of
• How will they distribute? Remotely or via face-to-face channels?
desire to reduce the size and complexity of large groups. These
considerable divestments contribute to reshaping the market and • What will their operating model look like and where will their core
offer new entrants a unique opportunity to develop a financial competencies sit? Based on these characteristics, should they manufacture
services presence rapidly. and distribute themselves and what should they look to outsource?
25 | Experian - Banking Moving ForwardMOBILE PAYMENTS: AN OPPORTUNITY AND THREAT
VALUE DIAGRAM: MOBILE PAYMENTS
Customer Loyalty Change Initiative: Company Company Value
Customer Priorities
Levers Mobile Payments Operation Levers Levers
POSITIVE EXPERIENCE = CUSTOMER VALUE
FREE CASHFLOW = SHAREHOLDER VALUE
Avoid Improve
Counters/ATM Service and Increase
Save Time Revenue
Queues Increase NPS
Queue Time Avg time to serve
Move cash
whenever, Increase Customer
Increase Self-Service Reduce Costs
Convenience wherever
% Customers using
# of Payment Options mobile payment
Lower Bank Costs Reduce Capital ATMs
Reduce = Lower Charges and Property Reduce Working
Spending Capital
# of ATMS and
Cost of Banking branches per Customer
RISK - LOSS OF TRANSACTIONAL DATA IMPACTING BANK’S ABILITY TO HARVEST DATA AND KNOW THEIR
CUSTOMER TO SERVE THEM WELL
26 | Experian - Banking Moving ForwardNON BANKS: Digital wallet takes over money transmission…?
DIGITAL WALLET The money transmission or current account has been the core product at the
heart of the customer relationship for decades, with customers expecting
an account which receives income, pays standing orders and direct debits,
alongside providing a debit card, all for free. The next few years will see a
rapid adoption of mobile wallet services which, over time, could replace the
traditional money transmission account. The more engaging and convenient
experiences of digital wallet propositions will likely win, whilst leveraging
existing banking payment infrastructure, and have the potential to replace the
bank as the core relationship owner with customers. Banks could become a
back-end service provider, still providing some non adopters with cards and
cash – the question being, where does the income get generated from?
However, it’s not the first time that new technology has been positioned to be
the end of traditional banking or of cash. Vast customer research suggests
a reluctance to switch to digital wallet, but research 10 years ago would
have suggested MP3 players were just a fad. This challenge must be taken
seriously by banks as the benefit of success is significant. The new entrants
have no intention of becoming a bank and taking on the regulation and capital
requirements, but they are very much interested in taking a dominant share of
the payments industry income. Success here will require merchant adoption
of technology, new levels of security which don’t diminish the customer
experience (biometrics?) and simple service which allows users to bring
together all their credit and debit cards.
Core Elements
Phone replaces plastic cards
Payments made via NFC
Wallet consolidates all brands
Provider levies fee on merchant
Security and lost phone?
27 | Experian - Banking Moving ForwardNON BANKS: DIGITAL WALLET, MULTIPLE PLAYERS
Mastercard
Microsoft Early adoption
Mobilepay
Visa
Discover
Moven
Billtomobile Incorporating more than just payments has always been important and is where many NFC (Near Field
TSYS
Communication) trials have fallen down. Trying to get people used to tapping a phone to pay needs
Zapp something more – a reward or loyalty incentive, as contactless credit cards and cash already give the
customer what they need in terms of convenience.
Amazon Intuit The use of mobile wallets is on the increase; mainly on mobile websites and apps, then more slowly
Apple
through Google Wallet Cards or through tapping to pay. Consumers don’t want dozens of merchant apps
on their smartphones. Mobile wallets can be a general purpose solution for payment and store loyalty.
Facebook
Foursquare
Mocapay
The big challenge, both conceptually and technologically, is sorting out the ‘tap and pay’ model to
Google Wallet actually pay for goods in-store with a mobile wallet. Consumers are much happier using an enabled
Intuit
credit card to tap, and the technology for tapping smartphones isn’t yet standardised (there are still
Mopay
Foursquare
disagreements around which party – bank, phone, merchant etc., – has the imperative to ensure
Square
Paydiant
Mocapay Kuapay security).
pay NCR
Kuapay
Google Wallet
NCR
Mopay
PayPal
The next year is likely to see more manoeuvring by the main players,
PayPal
Micros
Facebook
Amazon
Micros consolidating the market and progressing solutions to the main
blockers, whilst the banks and major card providers develop their own
Intuit
Mopay
competing propositions further.
Foursquare
T Paydiant
Mocapay
Moven
NCR
Square
Mobilepay
Kuapay
Google Wallet
Customer research globally at this time appears to suggest PayPal are leading in this race in developing
Apple
Paypal
Micros
Visa
the customer’s trust.
Facebook
Amazon
Billto
Microsoft
Zapp
Discover
TSYS Paydiant
Square
Mastercard
Apple
Billtomobile
28 | Experian - Banking Moving ForwardNEW BANKS New banks – old technology
Setting up a bank in the UK is not an easy task; it’s expensive to start and
operate. Beyond regulation, property and capital requirements, it has high
customer acquisition costs and you need a technology platform. Whilst many
technology providers will suggest they have a bank in a box, those companies
choosing to enter UK banking in recent years have learnt the hard way, reverting
to tested and proven systems to build their infrastructure. Launching products
and dealing with the plethora of mandatory changes hitting banks every year
has proven challenging, with the core banking ‘current account’ capability still
missing from many new entrants’ product ranges.
Even more surprising has been the decision on the government-owned EU
divestment banks to clone archaic systems rather than spend the substantial
separation budgets in establishing a more modern technology infrastructure –
in essence, hampering the future potential of these banks with legacy systems
which will be massively expensive to maintain for a smaller bank and which
the parent banks already struggle to maintain. A better outcome for both would
have been to have directed these £100m’s into new systems for both parent and
offspring. The impact of these decisions will be felt for many years to come and
may affect the UK tax payers’ returns from these too-big-to-fail investments.
Unless the banking industry collaborates in building a universal banking
platform – sharing the investment costs for a new banking infrastructure,
estimated in the £3-5bn+ range and taking 3 to 5 years – legacy technology
will constrain UK banking over the next decade and may prove preventative for
new entrants; and may even mean further consolidation is required to ensure
survival of existing players.
29 | Experian - Banking Moving ForwardSHORT TERM LENDERS
The UK’s consumer credit industry is one of Europe’s largest, with unsecured loans exceeding £160
billion in 2013. While banks and credit card companies remain the primary providers, there have been
significant shifts in the personal loans sector in this market, in recent years.
Squeezed by limits on liquidity in the financial crisis and subsequent recession, the retail banks reduced
their lending to both small businesses and individuals. At a time of rising costs, stagnant wages and
uncertain employment, the effect was to force increased numbers of households to seek alternative
means of obtaining cash advances; a supply-side opportunity quickly seized upon by high-cost credit
firms and most notably, short term loan companies.
£
Extending from sub-prime to mainstream credit, these companies have thrived. Between 2008 and 2012,
new loans doubled from 4 to 8 million and rose in value from £900,000 to over £2 billion, augmenting
turnover and profits for both high-street and online suppliers.
Past and current demand comes from a cross-section of individuals: men and women of varying ages,
marital status, income and socio-economic group. Some have poor credit histories and limited access to
other forms of cash advance. Others select the short term option on grounds of convenience, the relative
anonymity of the approval process and the speed money is transferred.
A few critics want to ban this form of lending. Others look to limit its expense by capping either the total
price of credit or, more particularly, interest rates and default charges. The government is looking at
how they can increase competition among suppliers alongside the more popular alternative; stronger
regulation.
Short term lenders look set for a challenging few years ahead, as the banks return stronger and more
focussed on serving the needs of their customers, and the regulator finally steps in to protect the
consumer from excessively high rates of interest.
Extending from sub-prime to mainstream credit, these companies
have thrived. Between 2008 and 2012, new loans doubled from 4 to 8
million and rose in value from £900,000 to over £2 billion, augmenting
turnover and profits for both high-street and online suppliers.
30 | Experian - Banking Moving ForwardCROWD FUNDING AND INVESTING Crowd funding is making it easier to raise capital. There has been a consistent
growth in the number of crowd funding platforms across the globe in recent
years. They address a niche but growing segment of the market that no other
financial system has been able to address well. Some of these crowd funding
platforms are now moving from crowd funding to becoming crowd investing (in
lieu of equity). What has been surprising, is that banking institutions have not
led the way and adopted this model so far, but considered these as competition
or a threat. This service sits somewhere between an SME business bank and
the bank’s stockbroking arm offering customers access to IPOs and AIM listed
companies. For investors, crowd funding has opened up new opportunities and
simplified the traditional investment process.
Banks already have access to:
• Customers who have cash and could be potential investors
• Prospective customers who want money and are seeking business funding
By launching a crowd funding or crowd investing platform, the bank could:
• Use the platform for all lending below a specific threshold, providing credit
checks and payment mechanism
• Establish a ‘social banking concept’ which manifests itself through the
hosting of P2P lenders and other crowd-financing
• Open up the non-secure lending market by routing all such requests via this
Investor Business platform
• Use the ‘wisdom of crowds’ to decide which projects get funded and which
don’t
• Even go to the extent to commit to fund an amount equal to the amount that
the project secures from the other investors. The current market is growing
quickly from £310M in 2011 to £940M, with continuing growth projected to
£1.6bn in 2014.
This approach could potentially spread the risk on such investments and open
up a new large market for the bank. As a bank, it would be easier to launch in
terms of regulatory approvals in place, so that the entire model could scale
much faster than it has so far, as investors have greater trust with a known
bank brand. Volksbank Buhl, one of the 1,100 cooperative Raiffeisen banks, has
become the 1st German bank to offer their customers a regional crowd funding
platform. Crowd funding models are emerging for property investing, scientific
research and angel investing. It is possible that within five years, crowdfunding
could provide around £15 billion of finance per year in the UK.
31 | Experian - Banking Moving Forward04 TECHNOLOGY 32 | Experian - Banking Moving Forward
DELIVERING CHANGE Growing influence of technology
Societies’ willingness to embrace technology has never been higher; fuelled
by phones, tablets and cheap computing, alongside new and compelling
propositions, already changing the way we work, play and live. Technology has
Biggest already redefined the music and book industry, resulting in completely new
Legacy Bespoke vs.
constraint business models for accessing and consuming these media. Research suggests
Systems standard? that within the next 2 years, 90% of all web content consumed will be video, as
on business
our behavioural change continues.
Banking and technology are inextricably linked with the very essence of a bank
Help or Have IT costs – from balances to transactions and customer information existing in a bank’s
Offshoring
hindrance really reduced? data centre. More than ever before, technology is shaping the next evolution in
banking, whilst also constraining its progress. Redefining how banks approach
technology development over the coming years will be key to their success.
Cost of This is a decision beyond just the CTO, but one for the Board, investors and
Mandatory Bespoke vs. customers.
staying in
change standard?
business
Integrity Trust on Minimum
and security every level expectation
Better is
Supporting Speed
better than
innovation matters
best!
33 | Experian - Banking Moving ForwardSTANDARDISATION
System standardisation at all levels
Standardisation is important as it’s the key to unlocking lower operational costs and interoperability
between functions and organisations. Consider the efficiency revolution that standardised shipping
containers brought to the freight industry in the second half of the 20th century. Goods that are packed
at origin are not handled again through sea, rail and road journeys. In every major country in the world,
ports, ships, lorry trailers and railway wagons are optimised for the size and shape of ISO intermodal
containers. In banking, standards need to begin converging to be more effective and usable. Industry-
specific standards are needed to enable plug and play modularity across systems, platforms and even
organisations. Banks will need to adapt in order to take advantage of new standardised technology from
the market. For example, to address mandatory changes, it will be cheaper to take a standard solution
than continue building bespoke capabilities and focus resources on areas of brand differentiation.
Proven legacy functionality will require investment or selective replacement to deliver the required levels
of agility. It is likely that banks will more fully engage technology vendors and standards bodies in the
definition and evolution of industry wide standards.
The potential to deleverage costs in banking could be significant if the right level of collaboration were
to be achieved. For example, does the UK consumer need brand differentiation of the 67,373 ATMs? Or,
like the telephony and utility networks, could they be owned and maintained by one body with every
UK bank’s customers benefiting from their location and function? Last year, 44 million people used
cash machines, visiting an average of five and a half times a month and withdrawing about £350 in
total over the period. Standardisation could reduce costs and release banks to focus on delighting their
customers.
34 | Experian - Banking Moving ForwardAPIs TO SUPPORT BANKS’ APIs – Enabling legacy systems in new architecture models
SERVICE PROVISION As banks rethink their technology models, one of the many options would be
to build out a service orientated architecture model which redefines current
functionality as separate, reusable services or APIs (Application Programme
Interfaces). An API is a programme that can access systems, data or technology
through a simple interface. APIs allow banks to access a range of functions/
services, including future third party services which may not yet exist.
Historically, banks have hundreds of independent back end systems, all built
for specific purposes. By building an API to these services, you unlock the
functionality within a service orientated architecture so that the services can be
used to benefit customers and banking operations. This will be key in delivering
‘anytime, anywhere’ banking and making multi channel banking possible when
married with business process and rules engines.
This approach also supports the more evolutionary nature of ‘agile’, where
delivery is quick and then adapts. You build incrementally upon functionality
which is working and make it better inch by inch, rather than trying to deliver
revolution via waterfall delivery methods – which in banking takes years, costs
double the budgeted spend and delivers half the benefits, because the scope
has been changed so much to get it delivered at all, all the added value has
been lost.
External providers have a big role to play in this area going forward, by
providing new services to banks which fit a standard model of required
functionality. For example, the recent FATCA (Foreign Account Tax Compliance
Act) regulation has required all banks to make changes to their systems to
capture data on customers who are US citizens, residents etc. Banks and other
financial services firms have spent £M’s each on developing bespoke systems,
whereas they could have spent their resources more wisely. By collaborating
on one solution which serves all, built as an API for them to plug into their
technology architecture, they could have saved 50-60% of what has been paid
for the eventual solution. Off the shelf solutions may instantly meet 60-80% of
requirements and deploy for significantly less cost, far quicker. Speed matters
more than ever before and better is better than best (10% strategy / 90%
implementation). Collaboration would likely prove a more effective model than
the recent trend for offshoring, which has delivered mixed results for different
banks, but few of the original benefits envisioned have been achieved.
35 | Experian - Banking Moving ForwardYou can also read
