Throughout 2017, retail banks have increasingly been debating how they will cope in a post-Payments Service Directive II (PSD2) world. The directive (which came into force on 13th January in the UK) looks set to shake up the financial industry, as high street banks come head to head with tech giants and FinTech start-ups. In a move to create a more competitive landscape and provide consumers with a more extensive, and cost effective, array of financial services and products, retail banks need to be thinking seriously about how they will operate in 2018 and beyond.
Data driven insights
New FinTech startups have already shown how providing tailored advice and products are winning customer loyalty. You only need to look at the interest being shown in Squirrel and Monzo to see that consumers value having a dashboard that can help them to monitor spending and understand where they might be able to save. This desire for bespoke guidance was reinforced in our recent research when we found that over half (55%) of consumers would feel comfortable with the bank monitoring their spending habits, if it was then able to improve their disposable income through personalised offers, money saving tips, real time reminders and updates.
Banks are sitting on a goldmine of customer data. First and foremost, banks should be improving the customer experience through greater use of transaction metadata gained from a smart transaction management (STM) and personal financial management (PFM) engagement. They should also consider alternative sources of insight, such as social media activity. Data from social media channels could now prove invaluable to banks and could be used as a means to assist account opening, background checks for loan applications or simply as a means to further improve the customer experience. The drive by banks to aggregate customer data to encourage customers to develop an ‘anchor relationship’ is well underway and is forming a long list of ‘me too’ functionality around customer experience and insight that is nevertheless seen as critical, even if it provides limited long term differentiation.
Banks can only stand to gain if they are able to build a detailed and accurate picture of customer behaviours. This year will see a surge in those willing to work with the new paradigm of ‘Fast Data’. Quickly gathering, assessing and overlaying data from different external, web-based sources in real-time with an automated process to guarantee quality and consistency. The maturity cycle is rapidly advancing in this area and looks set to deliver significant benefits over previous more manual methods of gathering data.
GFT has developed a number of Know Your Customer (KYC) and customer analytics tools that can help banks to deliver these kinds of personalised services. Emerging GFT tools and assets include ‘Friendlyscore’ a real-time credit scoring mobile app to enrich the retail store journey and ‘Brandchats’, enabling a deeper KYC analysis from public social network content.
New models to provide alternative services
As PSD2 begins to take effect, consumers will gradually begin to see a range of different financial services and products emerge. Faced with increased competition, retail banks need to ensure that they too are offering the different types of personalised services that their customers are likely to want in future. If they fail to do so, they may find their customers (in particular the younger, more mobile customers who have not had a long relationship with the bank) may decide to move their account elsewhere.
In order meet this challenge, and free up the investments necessary to provide agile cost effective operations, banks must move to a Banking as a Platform model (BaaP). Banks move away from a ‘full stack’ technology environment that requires them to own all of the technology required to offer a service, to one where they can ingest other services they do not own. In this way, banks can efficiently provide added value services for their customers that meet their existing and future needs, using a combination of their own technology, but most importantly, via third party solutions. An example of this working in practice is how banks are utilising TransferWise’s technology to conduct international payments, rather than having to build and maintain the infrastructure to conduct this task themselves.
Through a platform banking model that is open, banks can provide their customers with enhancements to existing services and all of the new services they might need in future without the heavy burden of the associated infrastructure costs of doing so. Also, more importantly, they can use the time and cost savings created to focus on enhancing their customer service even further. Fidor Bank (from Germany) is a great example of how a bank can operate with such a platform approach, relying heavily on application programming interface (API) enablement, allowing them to innovate rapidly and provide new services based on what the customer really needs.
In our Banking Expert survey, we found that a third (33%) of banks currently have a BaaP strategy in design and / or implemented already, with a further 17% having an agreed plan but still need to implement it. This is a promising start, but if retail banks are truly to service their customers’ future needs, all players in the market will need to have a strategy underway in 2018 to ensure that they do not begin to lose their customers to other more agile financial service providers.
PSD2 and BaaP push the financial industry further towards the model of open banking. In addition to updating their technology and platforms to enable them to compete in this new environment, banks will also need to examine their products, services and operations in order to embrace new opportunities. Each bank needs to review their existing and desired future state, to determine if they are able to adopt a multi-brand approach, new ecosystem marketplaces, or the monetisation of APIs as products. Unlocking the value in open banking models, looking beyond the obvious data and customer experience value is key for banks. Exploring ‘marketplace’ initiatives and new utility models anchored in the concept of the API as a ‘product’, delivered through developer-friendly portals will be a major feature going forward. This will drive increased modularity for the value chain of the bank, opening up new income streams, and driving volume based traffic in order to help cut the unit cost of manufacture for financial products.
Open banking is a new way of approaching the provision of financial services for customers, and as such, it demands a new way of thinking and new ways of working. Organisations need to develop so that they are both technically and business enabled. Subsequently this means that teams are going to be hybrids - they are going to be more agile and have a mix of skills and people. However, this hybrid approach is one which will cut across the more traditional financial services methodology with its typical siloed organisational structure. Organisations will need to think about the product, the customer, about the elements of APIs as a product and how they can be assembled in various ways to drive value. To do this, technologists and business leads need to come together and collaborate, and it is this collaborative experience that is so important for financial services to get right.
If there is one thing for retail banks to focus on in 2018, it is being entrepreneurial. They may have historically been entrepreneurial within the confines of product innovation, but now they need to drive an entrepreneurial spirit into their go-to-market strategy by reinventing and improving technology and business structures. Only then will they be able to maximise the opportunity offered by the open banking revolution.
Christian Ball, Head of Retail Financial Services at GFT
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