Banks should aim to provide all services online
BANKS are finding it increasingly difficult to ensure value for their customers because of the challenge from financial technology competitors that are muscling in on the “offer” – the point at which a customer’s process of research and assimilation culminates in the customer acting.
Before the advent of our mobile- and internet-driven world, customers would collect information, talk to friends, respond to advertising and, in the case of a loan, approach their bank manager for a facility. This reasonably well-defined process has changed dramatically over the past 10 years, and it is expected to continue changing for the foreseeable future.
Today, customers expect personalised offers to come straight to them, in terms of both breadth – the array of applications, from health care to financial services, music and social media – and depth: the development of smaller and smaller verticals within each application into greater and greater detail.
It’s highly unlikely banks are playing any role in the multitude of financial decisions that customers make every day, and an analysis of the offers received by customers via mobile phone and the internet will show that very few are being sourced by a bank, let alone the customer’s bank.
The first frontier
Historically, banks met their customers face-to-face. Then the arrival of the telephone resulted in a branch being visted only when the telephone process failed. With the arrival of the internet, both banks and customers have deemed online access to be a more time-efficient and sometimes simpler manner of engagement.
Key to this is that it was banks that determined the process, the terms (authentication, identification, origination, and so on) and the time (for how long and when). As new technologies arrived, banks automated their current process and ensured all their process requirements were met.
This process is referred to as Frontier 1 (see graphic), where the customer enters the bank’s process, performs what is needed and leaves. These Frontier 1 processes are an extension of branch and internet processes, providing customers with remote access at their leisure, and generating substantial process efficiencies and cost reductions for the bank and the client.
Most banks are progressing rapidly to complete as large a suite of functions on mobile as possible, in a race to claim leadership innovation credentials. Although this is hugely beneficial for customers, and banks cannot escape not competing, it is a zero-sum game, because, at some point, all banks have done all they can based on their existing propositions, and they are in the same position and need to look at the next curve. And herein lies the challenge.
The second frontier
As banks increase their scale and volume on Frontier 1, some are recognising the possibilities of harnessing their customer knowledge, their intellectual property in terms of risk and product design, and their architecture to respond to customers’ payment activities with real-time offers.
A customer uses his or her credit card to purchase an item, and the bank’s Behavioural Risk Indicator (BRI), product rules and pricing configuration immediately make an offer for a loan, which is converted immediately. Although such a product could be offered today, these offers have been virtually hard coded and have not occurred as an automated by-product of a combination of the different parts of an architecture – in other words, the BRI evolved from the customer data, the product rules and the automated origination via the online channel.
In this second frontier, banks are still operating from within their own processes, with little or no influence from external data.
The final frontier
Frontier 3 marks the complete disaggregation of a bank’s processes to be initiated and consumed on-demand from within the customer’s day-to-day activities. In light of the features delivered by a mobile-banking platform, this third frontier of customer engagement allows customers to pay, transfer, withdraw, and open or close accounts from any application. Some example are:
1. A customer walking down an aisle at a major retailer shopping for a new computer finds geo-location services triggering an online offer for the purchase of computer equipment. This, coupled with a special deal from the retailer based on the customer’s past behaviour, results in an offer that is converted before the customer reaches the check-out counter.
2. An interest rate or currency exchange rate changes, and an automated analysis of a customer’s profile suggests changes to product pricing and term. An offer is made without any physical-process intervention, and the customer confirms, declines or negotiates, and fulfilment takes place immediately.
This frontier is immensely challenging to realise, because it requires banks to disaggregate their services in a way that allows them to be completely consumed from within the customer’s day-to-day processes, or by allowing other service providers to deliver value to customers. Conceptually, this is tremendously difficult, because banks generally insist on having end-to-end control of where bank processes and customer processes meet. To achieve this, banks will have to break up their processes, which is the antithesis of what occurs in Frontiers 1 and 2.
Banks can – and should – start building towards this third frontier, by disaggregating their proprietary processes and systems, and working with other businesses to access the customer’s value chain across a range of industries.
Banks should also start working with other role-players to adopt information-sharing standards and share relevant customer data, as long as regulatory compliance is ensured. Finally, by reducing back-end complexity, banks can deliver a clear separation of business rules, pricing and core processes to unlock the final frontier of customer engagement.
Software companies spend an enormous amount of time persuading customers to buy software that solves a specific problem, but less thought and effort is applied to getting the right capabilities in place to compete with retailers.